As part of the Ontario government’s efforts to foster increased gender diversity on the boards and in the senior ranks of Canada’s largest companies, the Ontario Securities Commission (OSC) recently published for comment until April 16, 2014 proposed amendments to the existing governance disclosure rules contained in National Instrument 58-101 - Disclosure of Corporate Governance Practices(Proposed Amendments) that would require public companies which are Ontario reporting issuers to provide disclosure in their management proxy circulars (or in their AIF, if no circular is sent to their securityholders) regarding the representation of women on their boards and in executive officer positions. Given that any issuer whose securities are listed on the Toronto Stock Exchange (TSX) is a reporting issuer in Ontario, the Proposed Amendments will have a wide-ranging impact on Canadian public companies.
Proposed Disclosure Requirements
The Proposed Amendments would require TSX listed and other non-venture issuers which are reporting issuers in Ontario to provide annual disclosure regarding:
- director term limits or an explanation for their absence;
- policies regarding the representation of women on the board or an explanation for their absence;
- the board’s or nominating committee’s consideration of representation of women in the director identification and selection process or an explanation for its absence;
- the issuer’s consideration of the representation of women in executive officer positions when making executive officer appointments or an explanation for its absence;
- targets regarding the representation of women on the board and in executive officer positions or an explanation for their absence; and
- the number of women on the board and in executive officer positions.
The Proposed Amendments are the result of the Ontario government’s request of the OSC to undertake a public consultation process regarding disclosure requirements for gender diversity and to provide recommendations for specific disclosure requirements for public companies. In developing the Proposed Amendments, the OSC published in July 2013 a consultation paper for comment (available here, comments available here), held a public roundtable (transcript available here) and conducted a survey of TSX-listed issuers.
"Comply or Explain" vs. Mandatory Quotas
The Proposed Amendments do not impose a requirement for issuers to have a specified quota of women on boards or in executive officer positions, as is the case in Norway and France. Rather, the Proposed Amendments follow a "comply or explain" approach which would require an issuer to either confirm that it has a policy regarding the specific disclosure requirement (such as representation of women on the board or in executive officer positions) and provide details regarding the policy or, if the issuer does not have such a policy, explain why not and identify any risks associated with its decision not to have such a policy.
According to the OSC, the "comply or explain" approach is consistent with existing corporate governance disclosure requirements and provides issuers with the flexibility to determine the manner in which they address representation of women on their boards and in executive officer positions in order to take into account their particular circumstances. While such an approach has achieved success in other jurisdictions, such as Finland and Austria, some have questioned whether this approach will result in meaningful change. The OSC plans to conduct a review of compliance with the Proposed Amendments after they have been in effect for three years.
Director Term Limits
The requirement to disclose whether the issuer has adopted term limits for the directors on its board was added after the consultation process. According to the OSC, director term limits can be useful in promoting the appropriate level of board renewal and provide increased opportunities for qualified candidates, including women. The Proposed Amendments do not impose mandatory director term limits; rather, issuers will have the flexibility to set limits appropriate for their own circumstances or explain why they have chosen not to impose such limits.
The period for commenting on the Proposed Amendments will remain open until April 16, 2014 and comment may be submitted in writing to email@example.com. A copy of the Proposed Amendments and background materials may be found here.