On September 29, 2015, the Ontario Securities Commission (OSC) hosted a roundtable to discuss both its findings on compliance with and the disclosure undertaken in response to National Instrument 58-101 Disclosure of Corporate Governance Practices (the Rule Amendments). The findings were summarized in CSA Multilateral Staff Notice 58-307 (the Notice).

The Notice provides the assessments of staff with respect to their review of the disclosure documents of more than 700 issuers listed on the Toronto Stock Exchange (TSX).

The Rule Amendments follow a "comply or explain" model and require all non-venture issuers to make certain annual disclosures with respect to women on boards and in executive officer positions. The disclosure requirements include:

  1. stating the number and percentage of women on the issuer's board of directors (the Board), and in executive officer positions;
  2. if the issuer has director term limits or other mechanisms of board renewal;
  3. any policies relating to the identification and nomination of women directors;
  4. consideration of the representation of women in the director identification and nomination process and in executive officer appointments; and
  5. if the issuer has targets for women on boards and in executive officer positions, and if so, to disclose the targets.

The Rule Amendments state that if a non-venture issuer has not adopted the above-listed mechanisms, policies or targets, or does not consider the representation of women, then it is required to explain its reasons for not doing so.

Preliminary review

Issuers included

As of June 2, 2015, there were 886 reporting issuers listed on the TSX and subject to the Rule Amendments. Of those, 722 had released their disclosure on corporate governance by July 31, 2015, and had a financial year-end between December 31, 2014, and March 31, 2015.

Given the timing of the banking industry's year-ends (typically being October 31), the results from only one bank were included in the sample.

Some key preliminary findings

The Notice shows that there has been some progress toward achieving transparency in disclosure on the subject, but it also cautions that many issuers did not provide the level and/or detail of the disclosure necessary to satisfy the Rule Amendments.

Among the group of issuers reviewed, staff found that:

  • 49 percent have at least one woman on their board;
  • 60 percent have at least one woman in an executive officer position;
  • 15 percent have added one or more women to their board this year;
  • More than 30 percent with a market capitalization above CA$2 billion have adopted a written policy for identifying and nominating women directors;
  • Of those with written policies (about 35 percent of the total issuers), 48 percent disclosed that the policies were adopted or updated this year;
  • 60 percent with a market capitalization above CA$2 billion have two or more female directors; and
  • 19 percent have adopted director term limits, while 56 percent have adopted other mechanisms of board renewal.

Staff cautioned that, for many issuers, the disclosure provided was not sufficient in providing transparency regarding the representation of women. Staff provided additional guidance in the Notice.

Overview of the roundtable discussion

The general view from the roundtable panel was one of cautious optimism. There was a general view that the Rule Amendments had a positive impact on the number and percentage of women on boards and in executive officer positions. Osgoode Associate Professor Aaron Dhir suggested that the Rule Amendments may be contributing to the development of a “vocabulary of diversity”.

One of the most interesting parts of the roundtable was the discussion by the panelists of the “merit rationale” that was quite prevalent in the disclosure. The Notice reported that of the issuers that did not consider the representation of women in executive officer appointments, 88 percent stated that their explanation was based on a preference for “merit”-based selection. Panelist Alex Johnston, Executive Director of Catalyst Canada, challenged this viewpoint by asserting that the imbalance of female representation is not a supply issue, but rather a demand issue. She added that the merit answer may be a bit of a safety blanket for companies who should really be considering whether they are connected to the right networks with which to draw talent.

In addition, few issuers disclosed that they had targets, and 66 percent of those issuers without targets cited “merit”-based selection as the rationale for not adopting targets.

Panelists’ responses were generally critical of this business strategy, highlighting that women on boards and targets are not antithetical to merit-based approaches. The panelists further stressed that businesses generally set targets around what is important to them, because it helps to marshal internal resources and encourages accountability by being measurable. None of the panelists were recommending mandated quotas at this time.

What are some essential take-aways?

  1. Don’t rule out more prescriptive requirements in the future. If the current regime does not sufficiently move the needle, the regulators may consider a stricter approach that could include mandated board renewal mechanisms, written policies and targets relating to the advancement of women on boards and in executive positions. Mandated quotas do not appear to be under serious consideration at present.
  2. Disclosure results in tabular format provide a better view. The Notice states staffs’ views on formatting, including their position that presenting current and prior year numbers in a table “may increase the clarity of disclosure, and also simplify ongoing reporting on annual and cumulative progress towards targets, if applicable.”
  3. Extended requirements to fund managers. There was some discussion around whether the requirements should be extended to include fund managers, but this was a soft comment.

An unedited transcript of the roundtable discussion has been published by the OSC here.