A Summary of Changes and Impact to Shareholders
Earlier this year, the regulations relating to amendments to the Canada Business Corporations Act (“CBCA”) for diversity disclosure at publicly-listed corporations were released, which should have a large impact at TSX Venture Exchange (“TSXV”) and Canadian Securities Exchange (“CSE”) listed companies. These regulations will require all publicly-listed CBCA corporations to provide specific information on board and executive officer diversity policies and statistics beginning in 2020. While many Toronto Stock Exchange (“TSX”) listed companies have already adopted some form of board and executive diversity policy disclosure within their annual proxy circulars, the new regulations go one step further and now apply to TSXV and CSE companies as well.
The new regulations, which have taken over a year to be developed, will come into force on January 1, 2020 and will apply to all 2020 shareholder meetings of publicly-listed CBCA corporations. The information should be provided within the annual shareholder meeting notice or proxy circular and will need to go beyond reporting just on gender diversity. The specifics of the new regulations include:
- Reporting on Diversity at the Board and Senior Management Level
- Reporting Not Just on Gender Diversity
- Application to TSXV and CSE Listed Companies
- Comply or Explain Still in Effect
- A Review of the Provisions in 5 Years
Reporting on Diversity at the Board and Senior Management Level
CBCA corporations will be required to annually disclose their term limits, diversity policies and diversity targets (along with any related statistics) for the representation by “designated groups” at the Executive and Board level. Reporting will apply in respect of the Board as a whole, the Chair as well as any Vice Chair of the Board. At the Executive level, disclosure will be required for the President, Chief Executive Officer, Chief Financial Officer, each Vice President of a principal business unit, division or other function (including Sales, Finance and Production) and any other individual who acts in a policy-making capacity.
Reporting Not Just on Gender Diversity
The new disclosure requirements do not pertain only to women, but have been expanded to include other members of “designated groups”. The term “designated groups” is meant to align with the federal Employment Equity Act, which defines “designated groups” as: women, Aboriginal peoples, persons with disabilities and members of visible minorities. Current regulations require disclosure only on gender diversity.
Application to TSXV and CSE Listed Companies
While current disclosure regulations are applicable to TSX-listed issuers only that is not the case under the new regulations. Under the new disclosure requirements, TSXV and CSE listed companies will have to disclose the same types of disclosure information as TSX listed companies, which is a significant change for these companies.
Comply or Explain Still in Effect
The good news for CBCA corporations is that the new regulations do not impose any quotas or specific diversity requirements on companies. Similar to current Canadian securities law, a “comply or explain” regime will be put in place. This means that CBCA corporations will be under no obligation to increase the level of diversity at the Executive or Boardroom level. However, they must disclose the number and percentage of directors and executives who are members of designated groups. In addition, while they are not obligated to adopt a specific policy or quota for diversity, they will be required to disclose whether they have adopted a formal policy or not and if they have not done so explain why that is the case.
A Review of the Provisions in 5 Years
The federal government will review the new diversity disclosure regulations five years after they are enacted, in 2025. At that point in time, if the new regulations do not result in increased diversity at the Executive and Boardroom level, the government will consider whether further amendments to diversity disclosure requirements are required.
The expected impact at TSX-listed companies is lower due to the fact that many TSX-listed companies have already been disclosing the existence of a formal executive and board gender diversity policy at their companies the past couple of years and in the absence of a formal policy, the reason why such a policy has not been adopted. However, the expanded definition of diversity to include all “designated groups” as defined in the federal Employment Equity Act will mean additional reporting on the number and percentage of Aboriginals, persons with disabilities and visible minorities, which will require additional time and effort of staff to ensure adequate disclosure in these areas. That said, this change is more incremental in nature.
At TSXV and CSE-listed companies the impact should be much larger due to the fact that formal diversity disclosure regulations are currently not in effect for companies listed on these exchanges. This will require Boards at these companies to spend some time discussing the issue of diversity and whether the need for a formal policy is warranted at their company. If a formal diversity policy is not put in place, boards will then have to discuss the reasons why a formal policy is not required for their company and be able to explain this to shareholders through the annual proxy circular. Staff time (already stretched as it is at many TSXV and CSE-listed companies) devoted to this issue will also be increased to ensure that adequate diversity disclosure is provided to align with the new regulations. This will increase the soft compliance costs associated with annual disclosure.
Diversity has been an ever-growing issue at public companies in recent years. While some progress has been made, it is clear that the federal government feels this progress is not enough and is hoping that new diversity disclosure regulations will lead to further change. It will be interesting to see which companies embrace this new regulation to spark change in the make-up of their boards and executive ranks and ultimately which companies choose to do the bare minimum.
To review copies of the new regulations please click on the following links:
Regulations Amending the Canada Business Corporations Regulations, 2001
Canada Business Corporations Act