Earlier this month saw the closing of the comment period for the Ontario Securities Commission’s (OSC) Staff Consultation Paper 58-401 Disclosure Requirements Regarding Women on Boards and in Senior Management. The paper proposes amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices such that TSX-listed companies (excluding venture issuers and investment funds) would have to meet disclosure requirements with respect to female representation on boards and in senior management.
The purpose of the OSC consultation paper is to enhance corporate governance by “advancing the representation of women” in leadership roles with a “comply or explain” system aimed at promoting transparency with respect to gender diversity policies and practices. The paper highlights a lack of progress on measures of female representation in corporate Canada, particularly as compared to other jurisdictions.
Many jurisdictions outside Canada have been quick on the uptake in regard to disclosure requirements concerning women on boards.
In 2010, the U.S. Securities Exchange Commission implemented a rule requiring publicly-traded companies to disclose whether, and if so, how, they consider diversity in identifying director nominees. That same year, the Australian Securities Exchange made amendments to its Corporate Governance Council Principles and Recommendations for listed companies, recommending companies develop a diversity policy and focus on diversity factors when structuring a board. Like the OSC proposal, the Australian approach is based on a “comply or explain” model whereby companies who do not follow the recommendations must explain their reasons for not complying. Similarly, the listing rules in the United Kingdom require companies with Premium listings of equity shares to disclose their adherence to the diversity considerations as laid out in the UK Corporate Governance Code or reasons for non-compliance. Some jurisdictions have passed quota laws for state-owned companies (e.g., Austria) or private companies (e.g., France and Norway), and other jurisdictions have implemented “comply or explain” codes (e.g., Sweden and Denmark).
Back at home, the Ontario government delivered its budget earlier this year with a call to increase gender diversity and the participation of women on boards and in senior management. The topic of diversity has also gained traction in the corporate world with increasing recognition that stakeholders are interested in how issuers consider and advance diversity matters within the organization. Issues of diversity and female representation were also spotlighted in the Globe and Mail’s 11th annual Board Games report on corporate governance.
Yet some have shown hesitation and caution with respect to the OSC’s proposed “comply or explain” mandate, arguing that the implementation of such disclosure requirements could adversely impact the composition of boards and senior management with the advancement of candidates based on factors extraneous to their qualifications and expertise. It is also disputed that the focus on gender diversity could limit dialogue and awareness of other diversity issues, such as ethnicity and race.
On the other end of the spectrum, some responses to the consultation paper advocate for the imposition of hard quotas for corporate boardrooms and management enforced by strict sanctions for companies that fail to comply. For example, it has been suggested that companies face de-listing from the TSX in the absence of adequate female representation as per the quota.
As the government, regulators, and the larger public discuss ways to increase female participation in the boardroom — both domestically and abroad — companies would be prudent to reflect on their internal diversity policies and practices to ensure adequate female representation on boards and in senior management.
The author wishes to thank Jenny Yoo, articling student, for her valuable assistance in preparing this legal update.