Beginning in the new year, public companies (including venture issuers) incorporated under the Canada Business Corporations Act (CBCA) will be required to include expanded diversity information about their boards and senior management teams in their annual proxy circulars presented to shareholders.
The changes to disclosure requirements, implemented pursuant to recent amendments to the CBCA and Canada Business Corporations Regulations, 2001 (CBCR) (as previously discussed here), are intended to enhance transparency and improve the information available to investors, as well as to foster a conversation between management and shareholders on diversity issues. As such, effective January 1, 2020, CBCA corporations will be required to place the following information before their shareholders at every annual meeting:
- An indication of whether the corporation has adopted term limits, or other mechanisms of board renewal, for its directors and either a description of such mechanisms or reasons for non-adoption;
- An indication of whether the corporation has adopted a written policy relating to the identification and nomination of members of designated groups (described below) for directors and, if not, reasons why;
- If a policy has been adopted, a summary of the policy and a description of how the corporation ensures the policy is implemented;
- Whether the level of representation of designated groups is considered when identifying candidates for board seats and senior management roles;
- Whether the corporation has adopted a target for each designated group with relation to board seats and senior management roles, and, if so, the progress made in achieving the target, and, if not, the reasons for non-adoption; and
- For each designated group, the number and proportion, expressed as a percentage, of members of each group who are directors or members of senior management, including all of its major subsidiaries.
How to Disclose
The new diversity disclosure must be provided to each shareholder of the corporation either by (i) sending the information along with the notice of annual meeting, or (ii) making the information available with the corporation’s annual meeting proxy circular. The corporation is not required to send the diversity information to shareholders who have informed the corporation in writing that they do not wish to receive the information.
The corporation must also send the information to the director appointed under the CBCA for public access purposes. Industry Canada has indicated that the simplest way to send this information to the director is to submit the corporation’s proxy circular through Industry Canada’s Online Filing Centre at no cost.
Designated Groups and Self-Identification
The new disclosure obligations will be applicable to the following four designated groups as defined under the Employment Equity Act:
- Indigenous peoples (First Nations, Inuit and Metis);
- Persons with disabilities; and
- Members of visible minorities.
While CBCA corporations will be required to disclose the number of members of each of these groups who are directors and officers of the corporation, there is no requirement to name the individuals who identify with the particular designated group. According to the regulatory impact statement accompanying the CBCR amendments, this absence of individual identification in the disclosure may encourage members of designated groups to self-identify to corporations.
Members of Senior Management
A corporation’s senior management team includes the following roles for the purposes of the CBCA amendments:
- Chair and vice-chair of the board of directors;
- President of the corporation;
- Chief executive officer and chief financial officer;
- Vice-president in charge of a principal business unit, division or function, including sales, finance or production; and
- Anyone who performs a policy-making function within the corporation.
This definition aligns with the definition of “executive officer” generally found in Canadian securities laws.
Alignment with Securities Law Requirements
Ultimately, the changes to the CBCA and CBCR are consistent with a general trend in Canadian securities laws towards mandating greater disclosure in regard to representation on boards and in senior management positions as a way of improving diversity. Indeed, the new CBCA disclosure requirements follow those adopted by certain of members of the Canadian Securities Administrators in 2015 with respect to women on boards and in executive officer positions under National Instrument 58-101 Disclosure of Corporate Governance Practices and Form 58-101F1 Corporate Governance Disclosure. Notably, however, the CBCA requirements expand the concept of diversity to include the indicia of diversity discussed above and do not include exemptions for venture issuers. All “distributing corporations” (being reporting issuers and corporations that have either filed a prospectus or registration statement in Canada or a foreign jurisdiction, or have securities listed or posted for trading on an exchange in or outside Canada) will be required to comply with the new disclosure obligations in the upcoming 2020 proxy season.