Three years following implementation of mandatory disclosure of women on boards and in executive officer positions, the new rules have marginally improved female representation. The percentage of women holding board seats increased slightly to 14 percent last year, up from 11 percent in 2015, while the percentage of issuers having at least one woman on the board increased to 61 percent in 2017 from 49 percent in 2015.
Disclosure of gender diversity requires that both the number and percentage of women on boards and in executive officer positions be included; if a written policy has been adopted, a description of the policy and explanation of how it applies must also be noted. Disclosure must address the process, if any, by which women are identified and selected to board and executive officer positions. Further, 22 percent of reporting issuers disclosed a general diversity policy, not a policy relating to the identification and nomination of female directors. If you have a general diversity policy, it must have specific provisions relating to the identification and nomination of female directors.
Board member term limits and other renewal mechanisms should be described together with their contribution to board renewal. There was no marked improvement in the disclosure of director term limits: only 21 percent of the sample size of 722 reporting issuers had adopted term limits. Of those issuers, 50 percent had an age limit, 23 percent had a tenure limit and 27 percent had both. The most common reason for failure to adopt term limits is the potential for a negative impact on the continuity and experience of the board.
The Alberta Securities Commission found that many issuers were unaware of Canadian Securities Association (CSA) Staff Notice 51-333 Environmental Reporting Guidance regarding climate change risks, trends, risk oversight and governance.
Increasingly relevant in our digital age, CSA Staff Notice 51-348 – Staff’s Review of Social Media speaks to the concern over selective or misleading disclosure on social media and notes the importance of adopting a Social Media Governance Policy. Reporting issuers who use social media must take care to comply with securities laws even if social media is intended to be limited to a marketing tool.
Trends in Governance and Executive Compensation
- Proxy Access policies to facilitate shareholders’ nominations of directors have been adopted by TD and RBC, but it remains to be seen whether these policies gain traction.
- Nearly 200 Virtual AGMs were held in the United States in 2016; there is currently no platform tailored to the Canadian market, but Broadridge is working on a Canadian solution for launch in 2018.
- Environmental social governance has grown increasingly important to institutional investors, securities regulators, ISS and Glass Lewis and has been the subject of shareholder proposals.
- Increasing disclosure of board-shareholder engagement in proxy circulars with over 70 percent of TSX60 issuers disclosing engagement practices.
- There were 165 say-on-pay votes in H1 2017, up from 159 in H1 2016. The majority of companies received over 92 percent support, though there were four failed votes last year. The best defense to prevent a failed say-on-payvote is shareholder engagement.
- Usage of Performance Share Units (PSUs) continues to increase relative to stock options; the Canadian Coalition for Good Governance raised concerns in 2016 that some PSUs were found to be misleading in that they pay out a minimum regardless of performance, effectively becoming Restricted Stock Units. This could impact say-on-pay votes, so issuers should provide clear disclosure in proxy circular and make amendments to their PSU plans if required.