Diversity Disclosure: Canada’s New Approach

Diversity Disclosure: Canada’s New Approach

Amendments to the CBCA come into force on January 1, 2020.  Canada becomes the first country in the world to require diversity disclosure.

A Hot Topic

In recent years, gender diversity and the under-representation of women in leadership roles has been a hot topic. As this continues to be an issue in Canada, the Federal government has introduced legislative and regulatory amendments to the Canada Business Corporations Act (“CBCA”) under Bill C-25. These amendments will require distributing corporations (i.e. publicly traded corporations) to disclose to shareholders certain diversity information about their board of directors and senior management.

The stated purpose of the amendments by the Federal government is twofold:

• to improve transparency and information available to investors on corporate diversity; and
• through the information provided to shareholders, incite distributing corporations to take steps to increase such diversity and recognize the benefits of a more diverse makeup of board members and management.

The Federal government is fast-tracking the implementation of these amendments such that they come into force on January 1, 2020, ahead of the other regulatory amendments in Bill C-25.

The Current Framework: Diversity Disclosure Expectations Under Securities Law

In 2014, the majority of provincial securities regulators implemented amendments to National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”) to require distributing corporations (other than venture issuers) to report on their diversity policies and practices with respect to the representation of women among the members of their boards and in senior management.

However, as the Canadian Coalition for Good Governance notes in its brief on the Standing Senate Committee on Banking, Trade and Commerce: Bill C-25, despite these amendments, little progress has been made and further steps should be taken to encourage issuers to adopt measures to improve diversity among boards and executive officers.

The New Framework: Diversity Under the Amended CBCA

The amendments under the CBCA encapsulate a broader range of individuals than the required disclosure under NI 58-101 by incorporating the definition of “designated groups” as defined under the federal Employment Equity Act which includes not only women, but also includes Aboriginal peoples, persons with disabilities and members of visible minorities.

As a result, Canada will be the first jurisdiction in the world to require diversity disclosure beyond gender.

Under the amendments, disclosure must be made not only for members of the board but also with regard to prescribed members of senior management as defined in National Instrument 51-102 – Continuous Disclosure Obligations, including:

• the chair and vice-chair of the board of directors;
• the president and the vice-president in charge of a principal business unit, division or function, including sales, finance or production;
• the chief executive officer and the chief financial officer; and
• an individual who performs a policy-making function in respect of the corporation.

Furthermore, the amendments under Bill C-25 will also extend to venture corporations who are currently not subject to diversity disclosure under provincial securities laws.

Information to be Disclosed

The amendments under Bill C-25 will require distributing corporations to include in their proxy materials disclosure relating to the diversity among the members of the board and senior management to be sent to shareholders at the same time as the notice announcing the annual general meeting. Distributing corporations will also be required to concurrently send such disclosure information to the Director of Corporations Canada.

Such diversity disclosure will include the following:

• whether or not the distributing corporation has adopted term limits for the directors on its board or other mechanisms of board renewal along with a description of these;
• whether the distributing corporation has developed a written policy relating to the identification and nomination of members of designated groups for directors and if so, to provide a short summary of:
  • the policy’s objectives and key provision;
  • the measures taken to ensure that these are effectively implemented;
  • the annual and cumulative progress by the distributing corporation in achieving the objectives of the policy; and
  • whether or not the board of directors measures the effectiveness of the policy and if so, a description of how it is measured;
• whether the distributing corporation considers the level of representation of designated groups on the board and when appointing members; and
• whether or not the distributing corporation considers the level of representation of designated groups when appointing members of senior management.

These amendments also incorporate a “comply or explain” approach. As such, if a distributing corporation chooses not to comply with the disclosure on diversity and chooses not to formulate a policy on diversity, such distributing corporation will be obligated to provide reasons explaining the lack of a disclosure.

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