On July 30, 2013, the Ontario Securities Commission (OSC) released its proposal to require TSX-listed companies to provide disclosure about women on boards and in senior management. The OSC is welcoming public comments on the proposal until September 27, 2013.
At its core, the OSC’s proposal is to implement a "comply or explain" regime, the aim of which is to increase the number of women on corporate boards and in senior management of large public companies by making gender diversity policies and practices transparent. The OSC proposal does not contemplate imposing or requiring gender quotas or targets.
Impetus for the Proposal
The Ontario Government highlighted gender diversity as a priority in its May 2013 Budget and indicated that it would enlist the OSC’s help in considering measures to increase the participation of women on boards and in senior management through mandated disclosure. In response, OSC Staff Consultation Paper 58-401 Disclosure Requirements Regarding Women on Boards and in Senior Management was released.
The OSC consultation paper seeks feedback on a proposal to amend National Instrument 58-101 Disclosure of Corporate Governance Practices to implement gender diversity disclosure requirements for Ontario reporting issuers (other than venture issuers and investment funds). The consultation paper sets out a possible model for disclosure and seeks more general input both on how best to advance the representation of women on boards and in senior management and the role that the OSC could play in encouraging this.
A copy of the OSC’s consultation paper may be found at on the OSC’s website at www.osc.gov.on.ca/documents/en/Securities-Category5/sn_20130730_58-401_disclosure-requirements-women.pdf.
Proposed Model of Disclosure Requirements
The OSC’s proposed disclosure regime, if adopted, would require TSX-listed companies (and other non-venture issuers) to provide gender diversity disclosure as part of their annual summary of corporate governance practices. This would provide stakeholders with information on the issuer’s approach to advancing the representation of women within the organization, which may impact investment and voting decisions.
Specifically, the OSC is proposing that non-venture issuers (other than investment funds) would be required to make annual disclosure on areas such as:
- policies regarding female representation on their boards and in senior management;
- consideration of the representation of women in the director selection and board evaluation processes; and
- certain quantitative information regarding the representation of women in the organization, on the board and in senior management.
This would be done through a "comply or explain" regime, which is similar to the way Canadian securities regulators have approached other corporate governance issues (e.g., relating to director independence). Organizations subject to the requirements would need to either disclose their gender diversity policy or explain why they have no such policy and the risks or opportunity costs associated with their decision to not have such a policy. While quotas or goals would not be set by the regulator, organizations would be required to annually disclose statistics on female representation in senior management and boards, as well as disclose their progress toward goals they have set for themselves to improve gender diversity.
The OSC proposal has been informed by those board gender diversity disclosure rules or guidelines applicable to large public companies that other jurisdictions have already adopted or are considering, including the United States, the United Kingdom, Australia and parts of Europe. However, the proposed OSC disclosure model takes its own path. For instance, while the current United States approach set out in Item 407(c)(2)(vi) of Regulation S-K is also a disclosure-based regime that requires U.S. publicly traded companies to disclose in their annual proxy statements the role, if any, of diversity in the process for identifying nominees for board membership, the U.S. regime addresses diversity more broadly (not just in respect of gender)—but only in respect of board nominations (and not senior management), allows companies to define diversity in ways they consider appropriate and leaves companies with significant discretion to determine what disclosure and diversity policy, if any, is appropriate. Other countries, such as Italy and France, have set quotas for female board representation, while others, such as the Netherlands, issue guidelines with suggested goals for the percentage of female board members.
Next Steps and Proposal Impact
The OSC’s 60-day comment period will close on September 27, 2013. Details on how to submit comments on the proposal can be found in the OSC consultation paper (website link referenced above). The OSC has also indicated that it will host a roundtable in the fall to facilitate further stakeholder consultation.
After the OSC consultation process on this model disclosure proposal is complete, the OSC may then issue a new rule (or an amendment to the existing Corporate Governance Practices Disclosure Rule) for comment that would lay out in detail the disclosure regime requirements. This may happen as early as this fall.
Diversity on boards is an issue that is deservedly getting attention in Canada and globally. We expect that both the OSC’s proposal and the recommendations expected this fall of the Canadian federal advisory council established to promote women’s participation on corporate boards will stimulate much discussion within the Canadian business community about the advancement of the representation of women on boards and in senior management, and about diversity generally. We welcome the opportunity to discuss the OSC proposal and its potential impact on your organization’s practices with you.
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