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OSC Initiates Public Consultation Process Regarding Women on Boards and in Senior Management

August-7-2013

Lawyer Neill May
Area Corporate Finance and Securities

Summary

The Ontario Securities Commission (OSC) has initiated a public consultation process regarding women on boards and in senior management, responding to a request by the Ontario provincial government which had highlighted gender diversity as a priority in its 2013 budget.

OSC Staff Consultation Paper 58-401 Disclosure Requirements Regarding Women on Boards and in Senior Management (the “Consultation Paper”) (i) highlights the relatively low rate of women among the ranks of public company directors and senior officers, (ii) outlines the approaches adopted in other jurisdictions to enhance gender diversity, and (iii) puts forward a disclosure regime to encourage and facilitate public comment and debate.

Status of Women on Boards and Senior Management in Canada

The statistics cited in the Consultation Paper indicate that the rate of representation of women on boards of, and in senior management positions with, Canadian issuers is low, and is progressing very slowly.  For example, the Consultation Paper cited reports produced by Catalyst which concluded that:

  • in 2011, 10.3% of directors of Canadian public companies were women, representing a zero percent increase from 2009, and
  • in 2012, women held 15% of senior officer positions in Canadian public companies, and that while nearly one-third of companies had 25% or more women senior officers, compared to 14.3% in 2012, more than one-third of Canadian companies had no women senior officers at all.

The Consultation Paper also cites the GMI Ratings’ 2013 Women on Boards Survey, which states that Canada’s progress on measures of representation of women on boards is slow by international standards.  It also cites a report issued by TD Economics, stating that 43% of companies on the S&P/TSX Composite index do not have a female board member, and 28% have only one female board member.

The Current Securities Regulatory Framework

There is currently no requirement for Canadian publicly-traded issuers to disclose the percentage of women on their boards or in senior management, or their policies on gender diversity, and the current rules do not identify gender diversity as an objective.

Approaches to Diversity in Other Jurisdictions

The Consultation Paper summarizes current and proposed approaches to gender diversity issues in other jurisdictions.  For example:

  • United States:  U.S. securities laws require publicly-traded issuers to describe: (i) whether “diversity” (which is not defined, and makes no specific mention of gender) is a consideration in the process for identifying and evaluating nominees for directors; (ii) whether there is a policy in place with regard to the consideration of diversity; and (iii) if there is such a policy, how it is implemented and how its effectiveness is assessed.
  • Australia:  The Australian Stock Exchange’s published governance principles, which are not binding but are intended to serve as a reference point for listed companies, include recommendations that each listed company annually disclose: (i) the measurable objectives for achieving gender diversity; (ii) the proportion of women employees, women in senior executive positions and women on the board; and (iii) an explanation of any departure from the recommendations.
  • United Kingdom:  The U.K. government, as part of a broader governmental initiative to increase gender diversity, recently recommended that listed companies be required to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and to disclose annually a summary of the policy and the progress made in achieving the objectives.
  • Other European Countries:  On April 16, 2013, the European Commission issued a proposal for enhanced governance-related disclosure requirements.  One of the key objectives was to increase diversity on the boards of companies through enhanced transparency, including a requirement that each large listed company provide information about its diversity policy, including a description of the policy as it relates to gender diversity.  A more drastic approach has been adopted in countries such as Austria, Belgium, France and Italy, where quotas for female board representation have been legislated.

Disclosure Model Put Forward for Comment

The Consultation Paper considers a “comply or explain” disclosure regime to address diversity issues.  Specifically, the OSC is considering requiring issuers (other than venture issuers and investment funds) to disclose, on an annual basis:

  • whether the issuer has a policy regarding the representation of women on the board and in senior management, and:

- if so, (i) a summary of its key terms, (ii) how it has been implemented, (iii) how the effectiveness of the policy is measured and assessed (both generally and with reference to the annual evaluation of board effectiveness), and (iv) what progress has been made; and

- if not, why not;

  • whether the issuer’s board/nominating committee considers the level of representation of women in the director selection process and, if not, why not; and
  • the proportion, in percentage terms, of female employees in the whole organization, women in “senior executive positions” and women on the board.  For this measurement, the OSC proposes that the term “senior executive positions” would mean “executive officer”, which is defined in the current rules to mean (i) a chair, vice-chair or president, (ii) a vice-president in charge of a principal business unit, division or function including sales, finance or production, or (iii) an individual performing a policy-making function in respect of the issuer.

Conclusion

The importance of this initiative, and the high degree of priority placed on it by the provincial government and the OSC, are apparent. As noted by the Executive Director and Chief Administrative Officer of the OSC, Maureen Jensen, “[I]n my view, diversity of opinion is invaluable to corporate decision making, and it is therefore necessary to encourage greater representation of women at senior levels.  This proposal will inform investors of the progress that Canadian companies are making in advancing the
representation of women on their boards and in senior management.”

The Consultation Paper makes clear that Canada is lagging on gender diversity issues in public corporations’ boardrooms and executive suites.

A copy of the Consultation Paper, which includes specific questions the OSC is hoping stakeholders will address, can be found here.

For further information on these proposals, please contact any member of our Corporate Securities Group.