Women on Boards: Progress on Gender Diversity Still Slow, CSA Reports

The number of women on boards and in executive positions has risen compared to last year, but progress on gender diversity remains slow, the Canadian Securities Administrators (CSA) have found in their recently published CSA Multilateral Staff Notice 58-310 Report on Fourth Staff Review of Disclosure regarding Women on Boards and in Executive Officer Positions (Notice). The Notice continues the review, for a fourth year, of “comply or explain” disclosure provided by non-venture public companies concerning the representation of women on boards and in executive positions, as set out in Form 58-101F1 Corporate Governance Disclosure (Form).

The Notice follows three similar sets of review, the most recent of which found only small improvements from the findings of the first- and second-year reviews. See our October 2017 Blakes Bulletin: CSA Reports Another Small Step for Women; Still No Giant Leap for Humankind.

FOURTH-YEAR REVIEW RESULTS

The Notice continues the review of the compliance with gender diversity disclosure requirements for 648 issuers with financial year-ends between December 31, 2017 and March 31, 2018 (thereby omitting large Canadian financial institutions with October 31 year-ends). As in prior years, progress has been made for the representation of women on boards and in executive positions; however, the overall pace of change has been slow. The Notice found mostly positive improvements from the findings of the third-year review, as follows:

• Overall percentage of board seats occupied by women increased from 14 per cent to 15 per cent as compared to the prior year (12 per cent two years ago), increasing in all size categories of issuers, with the 47 largest issuers leading the way at 25 per cent (up from 24 per cent in the prior year and 23 per cent two years ago)
• 561 vacant board seats were filled during the year, with 29 per cent of the new directors being women (up from 26 per cent in the prior year)
• 34 per cent of issuers did not have a woman on their boards, down from 39 per cent in the prior year (45 per cent two years ago)
• 66 per cent of issuers disclosed having at least one woman in an executive officer position, up from 62 per cent in the prior year (59 per cent two years ago)
• 42 per cent of issuers disclosed they had adopted a policy relating to the identification and nomination of women directors, an increase of seven per cent compared to 35 per cent in the prior year (21 per cent two years ago), and issuers with such a policy had a greater overall percentage of board seats occupied by women (20 per cent) as compared to issuers without such policies (12 per cent)
• 16 per cent of the issuers had targets for the representation of women on their boards, an increase from 11 per cent in the prior year (nine per cent two years ago), with four per cent of issuers having a female CEO and 14 per cent having a female CFO
• Issuers with board targets had, on average, female board representation of 24 per cent, compared to 13 per cent for issuers that did not have a target
• 73 per cent of issuers disclosed that they considered the representation of women on their boards as part of their director identification and nominating process, an increase from 65 per cent in the prior year (66 per cent two years ago)
• 60 per cent of issuers disclosed that they considered the representation of women when making executive officer appointments, compared to 58 per cent in both the prior year and two years ago

REGULATORY RESPONSES

In light of the experience derived from the past four annual reporting periods, the CSA has engaged in consultations, research and disclosure reviews and continues to consider, in particular, whether further changes to the disclosure requirements in the Form and introduction of new or supplemental guidelines regarding corporate governance practices in National Policy 58-201 Corporate Governance Guidelines are warranted. To date, no decisions have been made.

PROXY ADVISOR DEVELOPMENTS

On January 4, 2018, ISS published its Canadian proxy voting guidelines for the 2018 proxy season, which articulated a new gender diversity guideline (ISS Guideline). See our January 2018 Blakes Bulletin: 2018 Proxy Advisory Firm Voting Guidelines: Canadian Highlights. The ISS Guideline was applicable to S&P/TSX Composite Index issuers in 2018 and is being expanded to both S&P/TSX Composite Index and non-Composite Index issuers in 2019, subject to certain exceptions. Under the ISS Guideline, ISS will generally issue a “withhold” voting recommendation concerning the chair of the committee responsible for nominating candidates for election to the board (or board chair if no applicable committee or committee chair has been identified) of issuers that have not disclosed a formal written gender diversity policy and do not have any women directors on their boards.

ISS has noted that gender diversity policies of such issuers should include a clear commitment to increase board gender diversity within a reasonable period, with measurable goals and/or targets, and that use of boilerplate or contradictory language may result in “withhold” voting recommendations for directors. In applying the new ISS Guideline, ISS will also consider such issuers’ disclosed approach to considering gender diversity in executive officer positions when formulating a voting recommendation. The ISS Guideline does not apply in respect of issuers with four or fewer directors, newly publicly-listed issuers within the current or prior fiscal year, and issuers that have transitioned to the TSX from the TSX Venture Exchange within the current or prior fiscal year.

In its 2018 Canadian proxy voting guidelines, Glass Lewis provided advance notice that, for the 2019 proxy season, it will generally issue a “withhold” voting recommendation concerning the chair of the committee responsible for nominating candidates for election to the board, or board chair, if the issuer has not adopted a formal written gender diversity policy or does not have any women directors on its board (GL Guideline). Glass Lewis has also noted that, depending on other factors, including the size of the issuer, the industry in which the issuer operates and the governance profile of the issuer, in 2019, it may also extend “withhold” voting recommendations to other members of the committee responsible for nominating candidates for election to the board. In applying the GL Guideline, Glass Lewis has retained discretion to refrain from recommending “withhold” votes to directors of issuers outside the S&P/TSX Composite Index, or when issuers’ boards have provided a sufficient rationale for not having any women board members or have disclosed a plan to address the lack of board diversity.

CONCLUSION

Progress continues to be slow in the fourth year since the Form was amended to require gender diversity disclosures. Although some momentum may be building as investors continue to pressure issuers to add more women to their boards and executive officer positions, regulators continue to consider further measures to increase the representation of women and amendments to the Canada Business Corporations Act to require disclosure on further aspects of diversity await coming into force.

For further information, please contact:

Stacy McLean               416-863-4325
Matthew Merkley           416-863-3328    
Niloofar Entezari            416-863-4342

or any other member of our Corporate Governance group.