For the 21st year in a row, Report on Business has rated the work of Canada’s corporate boards using a rigorous set of governance criteria designed to go far beyond minimum mandatory rules imposed by regulators.
The Globe and Mail’s data partner, Global Governance Advisors, examined the boards of directors of 226 companies and trusts in the S&P/TSX Composite Index to assess the quality of their governance practices and disclosure.
The chart shows the total marks for 2022 and 2021 based on dozens of individual criteria across four broad subcategories.
The marks are based on information published in the most recent annual shareholder proxy circular of each company that was a member of the index as of Sept. 1.
Current members of the index that were added after June 30 were not marked for Board Games. Also, three companies – limited partnerships affiliated with Brookfield Asset Management Ltd. – do not file a proxy circular and were not included. Capstone Copper Corp. and Sandstorm Gold Ltd. did not file annual proxy circulars because they are or were involved in merger transactions. And Dye & Durham Ltd. and Tilray Inc. did not publish a 2022 circular by the time of the markings.
A company must disclose its policies and practices in its circular for the company to receive marks.
All references to directors also include trustees at real estate investment trusts and trusts. All references to shares also include trust units.
All the detailed marks for each individual question are available on our website.
The Globe made a significant number of changes in the Board Games methodology for 2022, including removing a number of questions where the overwhelming majority of companies – roughly 90 per cent or more – received full credit. The Globe also reallocated several marks to other questions, particularly those about diversity. And it raised thresholds in those areas and others.
The changes mean that total points for gender diversity increase to seven from five, and points for other types of diversity increase to six from two.
For gender diversity, companies can now get four marks, up from three, if women make up more than 33 per cent of their directors. Companies that disclose a target for the proportion of women on the board with specifics and a timeline for achieving it now get three points, up from two.
Companies with less female representation on their boards, or with some disclosure on gender diversity but no formal target, receive the same points as in previous years.
The Globe also significantly increased points for diversity in ways other than gender, attempting to reward companies with diverse boards and in cases where the company is explicit about which groups are represented.
In 2021, the maximum award for diverse boards was just one point, for having one diverse member. Now, a company gets four marks if it has more than one board member who self-identifies as Indigenous, a member of a visible minority, has a disability, or is LGBTQ+ and specifies which groups the members belong to. Points decrease for one or fewer diverse board members, and if a company fails to say which groups are represented. The question also adds LGBTQ+ as a group for 2022.
Companies get two marks for disclosing details of a process used to consider board diversity, up from one in 2021.
Other areas where points increased include:
- Four marks if a board’s independent directors meet without management at every board meeting, including special meetings (up from three).
- Two marks for having performance hurdles for stock options or share units, beyond simply requiring the share price to rise over time (up from one).
- Two marks if there can be no payout for the CEO’s performance-based options or performance share units (up from one).
- Four marks if the company gives shareholders an advisory vote on executive compensation, known as say-on-pay (up from three).
- Seven marks for boards that have at least two-thirds independent directors. (The Globe removed three one-point questions about independence of certain board committees and reallocated the points.)
Areas where standards increased include:
- Companies must have a retirement-age or term-limit policy for directors to get the new maximum two marks for the question. Previously, companies could get one point for simply addressing the issue, even if the disclosure was that they had no policy at all.
- Companies with stock-option dilution of less than 3 per cent of outstanding shares now receive three marks; previously, companies received two marks if the dilution was less than 5 per cent.
- Companies can now get as much as three marks for requiring their CEO to own shares amounting to at least five times their base salary. That’s more points and a higher threshold than in the past, when companies could get up to two marks if the companies required them to own at least three times base salary. Now, to get one mark, the company’s CEO ownership requirement must be at least twice salary, up from one times salary previously. Companies that do not require their CEO to own at least two times base salary receive zero points.
The CEO ownership guidelines illustrate another 2022 change: The Board Games criteria no longer include questions that evaluate whether executives or directors hold shares, which included a calculation based on Board Games’ own methodology. That methodology did not count certain types of unvested equity awards.
Instead, Board Games now looks at how companies set their shareholding minimums, including what types of shares they allow to count. For example, the question on CEO stockholding requirements now makes explicit that stock options should not help satisfy the minimums. Any company that allows options to count toward share ownership requirements receives zero points.
Other changes include:
- Any company with fewer than full marks on the question on independent board chairs will now receive one additional mark if there is a lead independent director on the board. Previously, Board Games offered no credit for lead independent directors.
- The Globe replaced a question on overlapping board directors with a question that awards a point if the CEO of the company sits on no more than one other public company board. A related question expanded the prohibition for any board members from sitting on a total of four or more public company boards to companies listed on all stock exchanges, not just those on the S&P/TSX Composite Index.
- Companies that offer subordinate shareholders zero votes for board director elections will receive zero marks, regardless of the vote-to-equity ratio that otherwise determines marks in a question on voting rights.
The Globe removed questions on anti-hedging policies for insider stock ownership; disclosure on stock-option dilution and grant rates; disclosure of who is considered related directors; and director attendance at board meetings.