Partner and corporate governance chair Gordon G. Raman at Fasken offices in Toronto on Nov. 29.Christopher Katsarov/The Globe and Mail
Some Canadian public companies are required to follow a federal law that requires them to disclose data on how many visible minorities, Indigenous people and people with disabilities sit on their board of directors. Other companies produce diversity disclosures that follow that law, even if they’re not required to. Some go beyond the law and say how many directors are part of the LGBTQ2SI+ community. Some companies craft a diversity narrative that offers some disclosure, but falls short.
And some companies do nothing.
Canada has been a world leader in diversity disclosure. A 2015 regulation forced companies to disclose the number of women on the board and in executive management, and explain why the company didn’t have a target for more. In 2020, Ottawa required federally incorporated companies – about one-third of those traded on public markets – to disclose additional information on visible minorities, Indigenous people and the disabled.
There has been no new law or regulation since, however. Canada’s provincial and territorial securities regulators are deeply divided on a possible national standard for diversity disclosure, perhaps hopelessly so. The country’s stock exchanges have not put forward any requirements.
In the absence of a Canada-wide standard, companies must navigate a hodgepodge of rules, standards and requirements, many from influential private ratings entities, such as proxy advisers and The Globe and Mail’s annual Board Games corporate ranking, done in partnership with Toronto consulting firm Global Governance Advisors. And institutional investors themselves often have their own policies on diversity that expect even more from the companies than regulations or raters do.
The risk? As those institutional investors demand more data – and strong commitments to diversity at the board and executive level – Canadian companies may lag in attracting global capital.
“Oftentimes, I will get questions from senior executives or directors with respect to ‘How do I report this? Which categories do I use?’ and my answer is ‘Well, that depends,’” Kelly Gorman, executive vice-president at Kingsdale Advisors, said at a September panel discussion of diversity reporting sponsored by the Ontario Securities Commission.
For securities regulators, “it’s time to step in and create a definition that at least is the floor and is comparable disclosure for all investors,” she said. “Institutional investors today are using this information to make decisions that will have significant consequences to individual directors and have the ability to change the whole composition of governance for that company.”
The Globe has found, through its 22nd annual Board Games research, that Canadian companies are still struggling to navigate the field of diversity disclosure. Board Games has steadily increased the number of points devoted to diversity disclosure and practices, and the issues now represent 13 of the possible 100 total points.
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But for 2023, only 19 of 219 S&P/TSX Composite Index companies scored received the maximum possible points for these issues. And more than a third of them – 79 companies – received none of the six possible points for diversity beyond the representation of women. (These criteria exceed the standards of the federal law.)
Canadian advocates for gender diversity say more can be done, but they typically acknowledge that the 2015 required disclosure has already helped prompt the steady increase in women on boards.
According to law firm Osler, Hoskin & Harcourt LLP, which does an annual study of corporate diversity in Canada, women made up 23 per cent of boards of S&P/TSX 60 Index companies in 2015, the year the rule was introduced, and 12 per cent of Canadian board membership over all. By 2023, those numbers were 38 per cent for companies in the S&P/TSX 60 Index and 27 per cent for all companies that provided the disclosure.
The hope is that expanded diversity disclosure will help drive up board representation of other groups. Osler found that from 2021 to 2023, visible minorities went from 6.8 per cent of board positions to 10.2 per cent; Indigenous directors went from 0.5 per cent (eight people) to 0.9 per cent (17). And directors who disclosed disabilities went from 0.5 per cent (eight people) to 0.7 per cent (11).
For an example of the mélange of Canadian diversity disclosure, look at Magna International Inc. MG-T A shareholder looking at the photos of the company’s directors and reading their biographies would see that Magna has a diverse board.
Two directors, one a woman, appear to be East Asian. Another two, one a woman, appear to be South Asian. There are also three white women, one of whom, according to her biography, won the lifetime achievement award from the group Out on Bay Street.
That’s seven of the company’s 13 directors, or 53 per cent. It’s a majority-diverse board in an industry – automobile parts – that had been very white and very male for a very long time.
But Magna’s official disclosure on diversity in its shareholder proxy circular says only 46 per cent of its board is diverse by “gender, LGBTQ+ and underrepresented minority in home country.”
Magna, as an Ontario-based and incorporated company that trades on the Toronto and New York stock exchanges, is not subject to the Canadian federal law and faces no other regulatory requirements for diversity disclosure other than the representation of women. So the disclosures it makes are voluntary – and imprecise.
By combining the diverse groups in the disclosure, Magna does not disclose how many directors are part of each. And Magna’s policies, like those of most companies, rely on directors to self-identify which groups they belong to – which means one of those seven directors apparently chose not to claim they are part of any diverse group. Instead of using the Canada Business Corporations Act framework and Canadian definitions of “visible minority,” Magna uses a term from Nasdaq stock market regulations in the United States that the company need not even follow.
Tracy Fuerst, a spokeswoman for Magna, declined to comment for this story.
“It seemed like many of the companies do not want to use the term ‘visible minority,’ for instance,” said Tony Spizzirri, the principal at Global Governance Advisors who supervises the Board Games scoring. ”'Racial/ethnic diversity’ is more common to read about in a circular. The CBCA specifically uses ‘visible minority’ and, so, to provide a different term means that now all of a sudden there’s ambiguity, and many of the companies didn’t clearly define what they meant by ‘racial diversity’ or ‘ethnic diversity’ or ‘cultural diversity.’”
Magna’s challenge with director self-identification is not unique, says Rima Ramchandani, co-head of the capital markets practice at law firm Torys LLP. She has advised companies that think one of their directors fits within a diverse category, but that person has chosen not to identify that way.
“My answer is you report what the person tells you,” Ms. Ramchandani said in an interview. “It isn’t the issuer’s job to police this information of their directors and officers. … Most individuals have sufficient lived experience to decide what they’re going to identify as and you should respect that determination.”
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Melanie Adams, head of responsible investment at RBC Global Asset Management, told the OSC roundtable in September that while gender diversity is a factor in her firm’s voting on directors, other forms of diversity can’t easily be considered because data don’t exist. “A lot of times, it’s just not available. It’s just not there.”
Enter the Canadian Securities Administrators, an umbrella group for the provincial and territorial securities regulators. It planned to present investors with a proposed rule for all publicly traded companies on how to disclose diversity. With the regulators divided in their positions, however, the CSA published two competing rule proposals in April. And the comments the CSA has received from market participants suggest a hopeless division, creating a strong possibility the process won’t produce a unified policy.
One proposal, for what is called a “Form B” disclosure, is supported only by Ontario regulators, and would require companies to report on the number of directors from each of the four designated groups in the CBCA law as well as LGBTQ2SI+ (lesbian, gay, bisexual, transgender, queer, 2-spirit, intersex and others). The proposed form would require companies to use a standardized table so investors could compare different companies’ numbers.
The other proposal, Form A, would not require companies to disclose numbers for any group not part of their diversity goals. Instead, a company would describe its diversity objectives and how it would measure progress. Form A requires no specific table or format. Securities regulators in British Columbia, Alberta, Saskatchewan and the Northwest Territories back this approach.
The remaining provincial and territorial regulators have taken no position.
“They were probably having an internal tussle figuring out what the proposal should be, and that must have taken a long time,” Gordon Raman, a lawyer at Fasken Martineau DuMoulin LLP who chairs the firm’s ESG & Sustainability Practice, said in an interview. “Having taken that time, though, it would have been better to have forced themselves to come up with a common view. I don’t think it’s that helpful when regulators open it up and say, ‘We’re not sure which way to go.’”
A little more than half the 50-plus commenters on the form proposals endorsed the OSC’s preferred Form B, with some saying Form A is no better than the status quo. Others endorsing Form B said it doesn’t go far enough in requiring disclosures and company-defined targets for diversity. More than a third of commenters, however, endorsed Form A. Their main objection to Form B: Allowing regulators, rather than companies, to define diverse groups is “too prescriptive” and fosters a “tick-the-box” approach.
The Form A supporters include industry trade groups and multiple companies in the Alberta oil patch. Mark Stainthorpe, Canadian Natural Resources Ltd.’s chief financial officer, referred to Form A as “the western proposal” in his comment letter to the CSA. It “provides a balance between the need of stakeholders to have transparency” on a company’s diversity while supporting the need “for flexibility to craft a ‘fit for purpose’ approach to fostering greater diversity without creating undue administrative cost and burden.”
The Form B supporters include nearly all major pension plans in Canada and a number of advocacy groups and governance consultants. Adrian Mitchell, the senior managing director for public equities at Healthcare of Ontario Pension Plan, wrote that it “strongly prefers” Form B, which “will provide investors with consistent, comparable disclosures; form A will not do this.”
John McKenzie, chief executive officer of TMX Group Ltd. X-T, which owns the TSX, wrote that after a consultation that included some of the hundreds of small companies on its Venture Exchange, TMX decided to back Form A for its “potential to provide shareholders with better information. … One size does not fit all when it comes to corporate governance.”
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The Canada Pension Plan Investment Board, manager of the country’s biggest pension fund, broke from its peers and endorsed Form A. Richard Manley, its chief sustainability officer, cited Form A’s “more flexible approach” and said that “the scope of Canadian diversity is not fully captured in the proposed list of designated groups.”
The end result of the CSA process is unclear. Stan Magidson, the current chair of the CSA and CEO of the Alberta Securities Commission, said the CSA will “take the time we need to review the comment letters.”
Some pension executives, such as Barbara Zvan, CEO of the Toronto-based University Pension Plan, said the Form B diversity disclosures are important enough to move forward immediately if consensus cannot be reached among the CSA members. “UPP supports the Ontario Securities Commission in acting independently to issue new regulations before the end of 2023.”
Scott Blodgett, a spokesperson for Ontario’s Ministry of Finance, did not directly answer the question of whether the province’s government will bless the OSC forging ahead, saying the government “has identified corporate diversity in capital markets as an issue for further government consideration.”
The OSC will not say publicly whether it is willing to act on its own. OSC CEO Grant Vingoe said at the September roundtable, “This shouldn’t be perceived as a strict choice, necessarily, between Form A and Form B. You know, we recognize there may be opportunities for a hybrid approach or a compromise.”
OSC spokesperson Crystal Jongeward said in an e-mail Thursday that Mr. Vingoe’s comments still stand.