For the most recently completed AGM season, the Ontario Securities Commission, together with most of the other securities commissions in Canada with the notable exceptions of Alberta and British Columbia, adopted a new disclosure rule requiring issuers listed on the Toronto Stock Exchange to provide annual disclosure of their policies and practices regarding: (i) term limits for board members and other mechanisms for board renewal; and (ii) the representation of women on their boards and in their executive officer ranks. The objective of the rule is to use the issuer’s own public disclosure to put public pressure on Canadian public companies to increase the representation of women on their boards and in their executive officer ranks.
This summer the securities commissions examined the corporate disclosure from 886 TSX-listed issuers that were subject to the rule. Of these, 722 issuers had year-ends between December 31, 2014 and March 31, 2015, and filed information circulars or annual information forms by July 31, 2015. These 722 issuers comprised the sample group for the review. The market capitalization of most of the issuers in the sample was below $1 billion (72%). Almost half of the sampled issuers were in either the mining or oil and gas industries, with other industries fairly evenly represented.
While the securities commissions attempted to put a positive spin on the results of their review (i.e. suggesting that adoption of policies and practices increased as the market capitalization of the issuer increased and that many issuers had adopted or updated their polices within the past year), a quick summary of the results of their review shows the following:
- Most issuers do not believe that board terms limits are appropriate.
- While many issuers have general diversity policies, most issuers do not have a specific written policy regarding the representation of women on the board and do not feel that such a policy is necessary or appropriate.
- While most issuers disclosed that they consider the representation of women on the board as part of their director identification and nominating process, most also stated that they do not have specific targets for the representation of women on the Board and in executive officer positions and that they do not select candidates based on gender but rather based on merit (i.e. they select the candidate that is the most qualified for the job).
The securities commissions stated that issuer size and industry were the most significant indicators of whether issuers adopted initiatives to increase the representation of women on their board or in their executive officer positions. However, in all market capitalization groups and industry groups, the adoption of such initiatives was less than 50% and usually much lower than 50%.For your reading pleasure, below is a more detailed summary of the results of the review published by the securities commissions.
Rule: A TSX-listed issuer must disclose whether it has adopted director term limits or other mechanisms of board renewal or disclose why it has not adopted a mechanism of board renewal.
Only 19% of issuers in the sample adopted director term limits, while 56% reported that they had adopted some other mechanism of board renewal (i.e. annual board assessments) but not director term limits.
The most commonly cited reasons for not adopting director term limits were as follows:
- Director term limits reduce continuity or experience on the board (51%).
- Director term limits force valuable, experienced and knowledgeable directors to leave (39%).
- Director term limits are arbitrary (35%).
Most issuers cited more than one reason.
Of the 137 issuers that reported having term limits, 53% set an age limit, 24% had a tenure limit and 23% had both.
Rule: A TSX-listed issuer must disclose whether it has adopted a written policy relating to the identification and nomination of women directors, and to provide details in respect of the policy.
Only 14% of the issuers in the sample disclosed that they had adopted a written policy specific to gender diversity, whereas 65% disclosed that they had decided not to adopt a written policy specific to gender diversity.
Note that, of the sampled issuers, 11% disclosed a general diversity policy without specific provisions for the identification and nomination of women directors. However, the Canadian securities administrators stated that simple disclosure of a gender diversity policy does not satisfy the “comply or explain” disclosure model of the rule. The disclosure must specifically address whether or not the general diversity policy, or any other policy, includes provisions specific to the identification and nomination of women directors.
Rule: A TSX-listed issuer must provide an explanation of whether, and if so how, the board or nominating committee of the issuer considers the level of representation of women on the board in identifying and nominating candidates for election or re-election.
In the sample, 60% of issuers disclosed that they considered the representation of women on the board as part of their director identification and nominating process. Similarly, just over half of the sampled issuers (53%) disclosed that they considered the representation of women when making executive officer appointments. However, in both cases, the majority of these issuers did not specifically explain how this was considered.
For issuers that disclosed that they did not specifically consider the representation of women on the board in their identification and nomination process or when making executive officer appointments, the most common reasons given were as follows:
- The issuer seeks the best candidates, regardless of gender (84% and 88%, respectively).
- Considering the representation of women as a selection criteria is not in the issuer’s or shareholders’ best interest (11% and 13%, respectively).
- The issuer wanted to select candidates from the broadest possible talent pool (4% and 7%, respectively).
Most issuers cited more than one reason.
Rule: A TSX-listed issuer must disclose whether it has adopted targets regarding women on their board or in executive officer positions. If targets have been adopted, the issuer must disclose its annual and cumulative progress in achieving the targets.
Only 49 issuers, or 7% of the survey group, set a board target and only 11 issuers, or 2%, set an executive officer target. Of issuers with board targets, 39% had already achieved their stated target.
Invitation for Discussion:
If you would like to discuss this or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.
Disclaimer:
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.