The Canadian Securities Administrators (CSA) released its CSA Multilateral Staff Notice 58-314, Review of Disclosure Regarding Women on Boards and in Executive Officer Positions – Year 8 Report. The CSA reports a modest uptick, as compared to its prior year’s report, in the overall percentage of women on boards and in executive positions. However, in light of the ever-increasing focus on environmental, social and governance (ESG) factors, there appears to be an opportunity for more significant growth for issuers that actively plan to address this particular factor, as well the potential for practical consequences for an issuer that fails to adequately address any lack of gender diversity on its board or within its management.

The CSA collected data based on a review sample of 625 issuers (out of the 792 issuers subject to the related disclosure requirements) with year-ends between December 31, 2021, and March 31, 2022, and which filed their information circulars or annual information forms by July 31, 2022. From the data collected by the CSA in this sample, it appears that the total number of board seats occupied by women continues to increase year-over-year, from 11% in year one to 24% in year eight. In this year’s report, CSA notes that 24% of board seats were held by women, an increase from 22% recorded in the last report, and 7% of the chairs of boards were women, up from 6% last year. Perhaps more notable is that 45% of the vacated board seats were filled by women, a significant improvement from 35% last year. With respect to senior management positions, 19% of issuers had a woman CFO, up from 17% recorded in the last report, while 70% of issuers had at least one woman in an executive position, up from 67% last year. The percentage of women CEOs remained unchanged at 5%.

The number of women on boards and in executive positions also varied by industry. The manufacturing, real estate and utilities industries had the highest percentage of issuers, with one or more women on their boards, while the mining, oil and gas and biotechnology industries had the lowest percentage of women on boards. For women in executive positions, the utilities, manufacturing and retail industries had the highest percentage of issuers with one or more women in executive positions, while the mining, technology and oil and gas industries had the lowest percentage of issuers with one or more women in executive positions.

The CSA observed that issuers who set targets for the representation of women on their boards had a greater proportion of board seats held by women. On average, issuers that adopted board targets had 30% of their board seats held by women, compared to 20% for issuers without targets. However, only 39% of issuers adopted targets for the representation of women on their board, and only 4% of issuers adopted targets for the representation of women in executive officer positions.

The CSA notes that one of the key objectives of the disclosure requirement, for women on boards and in executive officer positions, is to “increase transparency for investors and other stakeholders regarding the representation of women on boards and in executive officer positions, and the approach that issuers take in respect of such representation.” The CSA also notes that, although its review of the disclosure was completed primarily to identify key trends, rather than to perform a qualitative assessment of compliance with requirements, issuers generally provide their disclosure in different ways, and the format and content may vary from issuer to issuer. Since it may be difficult to locate and interpret the relevant disclosure, CSA suggests that issuers consider presenting data related to the disclosure requirements in a common tabular form. However, the increasing focus on women on boards and in executive positions by investors, especially institutional investors and proxy advisory service firms, seems to be advancing beyond satisfying transparency requirements, and could end up having a practical impact on a board’s ability to govern.

For instance, Glass Lewis, a major proxy advisory services firm, recently released its proxy voting policy for Canada, for meetings to be held in 2023. Glass Lewis now recommends voting against the nominating committee chair of any Toronto Stock Exchange (TSX) listed company with a board that is not at least 30% gender diverse. Furthermore, Glass Lewis recommends voting against all members of the nominating committee of a board with no gender diverse directors. Glass Lewis defines gender diverse directors as women, as well as directors, that identify with a gender other than male or female. For companies not listed on the TSX, Glass Lewis requires a minimum of one gender diverse director and recommends voting against the nominating committee chair if there are no gender diverse directors. It should be noted that Glass Lewis may refrain from recommending that shareholders vote against directors of companies where the board provides a sufficient explanation or a plan to address the lack of diversity on its board. Such a plan could be a diversity policy, with non-boilerplate language, that sets clear targets or disclosure around the board’s timeline for increasing gender diversity.

Institutional Shareholder Services (ISS), another major proxy advisory services firm, has also released its 2023 proxy voting guidelines for Canada for S&P/TSX Composite Index companies. Similarly, ISS will recommend to vote withhold for the chair of the nominating committee or the chair of the board of directors (if no nominating committee or no chair of such committee has been identified) where women comprise less than 30% of the board. While Glass Lewis provides a possible exception to a recommendation to vote against where a company provides a plan for improving gender diversity on its board, ISS, on the other hand, has removed a comparable exception that was in its 2022 guidelines that accepted the existence of a publicly disclosed commitment to achieve 30% of women on the board to suffice in lieu of actual representation of the desired threshold. However, it should also be noted that ISS does provide an exception to the vote withhold recommendation where a company has just joined the S&P/TSX Composite Index and was not previously subject to a 30% representation of women on the board requirement, or where the company has fallen below 30% representation of women on the board due to an “extraordinary circumstance,” after having achieved such level of representation at its preceding AGM. For TSX companies which are not also part of S&P/TSX Composite Index, ISS generally recommends a vote withhold for the chair of the nominating committee or chair of the board of directors, as applicable, where there are no women on the board of directors. The ISS policy on board gender diversity will not apply to newly publicly-listed companies within the current or prior fiscal year, companies that have transitioned from the TSX Venture Exchange within the current or prior fiscal year or companies with 4 or fewer directors.

While the representation of women on boards appears to be growing in response to increased focus on ESG issues, there is opportunity for more significant growth. With increasing focus on ESG factors, issuers may notice that the business environment and investment community are becoming less accommodating of companies that do not prioritize governance diversity, which includes issuers addressing their gender diversity on boards and in executive positions, and that solely satisfying the transparency disclosure requirements of the CSA may not be enough to satisfy market participants when it comes to electing boards of directors.

Therefore, management of issuers should be encouraged to revisit their governance policies to assess whether their diversity policy and practices are appropriate and effective in light of the most recent CSA report, and whether there is an opportunity to improve the representation of women within their ranks in light of the standards that major proxy advisory firms are looking for. Management of issuers should take the opportunity now, well in advance of the next AGM, to reevaluate their internal governance mandates and policies, and consider setting clear targets for the representation of women on their boards and in executive positions. Doing so could help management preempt external pressures from proxy advisory firms and mitigate the related risk of unintended changes to their board at the next AGM. 

For further information on this topic and possible options for improving board diversity and compliance with the related disclosure requirements, contact Michael Sabusco, Dina Awad, or Mariam Momodu.