ENCOURAGING AND SUPPORTING MORE DIVERSITY ON CORPORATE BOARDS (2023)

Issue

The business case for ensuring gender diversity and ethnic and cultural diversity, among other diverse groups deserving of representation, on corporate boards is clear and their continued under-representation is costing businesses economically, thus it should be a priority to find ways of encouraging and supporting more diversity to sit on boards. The growing amount of research regarding this topic suggests that companies which have more diverse board directors perform better, with greater diversity on boards being linked to everything from better returns on equity, higher stock prices, and overall better financial returns.[1]

Background

Women and people with diverse characteristics continue to be underrepresented in leadership and decision-making positions in Canada. Visible minority representation continues to be low, with some studies finding that only 8% of boards identify as visible minorities in B.C. and Canada[2], and just five companies out of 50 (10%) have an Indigenous person in their leadership.[3] Women only account for one in four senior managers in Canada, or about one in five corporate board directors, while they represent almost one in two workers.[4] In B.C., 50% of the most prominent publicly-traded companies either have no female directors or refuse to reveal that information.

While the business case may be clear, many B.C. and Canadian firms have made some progress in welcoming more women, Indigenous peoples and visible minorities into these positions and there are several policy solutions which could help facilitate further change.

Importantly, the B.C. Government itself has been a leader in board gender diversity achieving a laudable 49% overall level of women on government-appointed boards[5]. The B.C. government can build on that leadership by taking several courses of action to help B.C. companies encourage and support more women and other diverse representation to sit and serve on boards.

At the same time, the B.C. government can further greater diversity and inclusion by working with the business community through the BC Chamber network on a consultation process that builds on gender diversity and increases ethnic and cultural diversity by identifying, defining and setting clear goals to achieve parity on this front.

Adopt Existing Gender Diversity Comply-or-Explain Regulations at the BC Securities Commission

Back in 2014, securities regulators in seven provinces and all three territories adopted amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices that require “reporting non-venture issuers” to disclose annually the number and proportion of women occupying board and senior executive positions, as well as disclose their corporate policies regarding:

• term limits for the directors on its board or other mechanisms of board renewal,
• the identification and nomination of women directors,
• whether and, if so, how the board or nominating committee considers the level of representation of women on the board in identifying and nominating candidates for election or re-election to the board,
• whether and, if so, how the issuer considers the level of representation of women in executive officer positions when making executive officer appointments, and
• whether the issuer has adopted a target regarding women on the issuer's board and in executive positions.[6]

Companies which do not have such policies must explain why they have not been adopted, a regulatory model known as “Comply-or-Explain.”

Comply-or-Explain regulations are able to shed light on the issue of gender diversity and encourage behavioural change by the business community by prompting discussion and consideration of the issue. One review of the impact of the new comply-or-explain regulations found that more than half of all issuers “have adopted formal policies addressing the representation of women on the board” and that this was “a good example of disclosure rules driving corporate behaviour."[7]

British Columbia was one of three initial hold-out provinces which did not sign on to these regulation amendments.[8] As of December 31st, 2016 the Alberta Securities Commission enacted the regulations in that province following a short consultation process in the fall, leaving B.C. as a laggard among the larger provinces in this important area.

While the government’s decision not to adopt comply-or-explain amendments could somehow be connected to B.C. being a party to the Cooperative Capital Markets Regulatory System, however, this system does not yet include diversity disclosure regulations. Also, it should be noted, the implementation of the system is delayed due to all participating governments focusing on COVID-19, economic recovery and reforms to provincial securities legislation.[9] Instead of waiting, B.C. can act now to join the rest of Canada in promoting greater gender diversity on boards by implementing the above comply-or-explain regulation amendments.

Requiring the Consideration of Diversity for Board Vacancies

While comply-or-explain regulations have had some positive impacts and have driven corporate behavior in the right direction, for instance, across all TSX-listed companies, 26% of the board seats are now held by women up significantly from 2015 when women represented only 10% of directors.[10] Of course, the results still leave things short of the overall goal of gender parity and this doesn’t take into account where we are at for issues like ethnic and cultural diversity. In fact, across all Canada Business Corporations Act (CBC.A) corporations, just under 10% of board positions are held by directors who are members of visible minorities, Indigenous peoples or persons with a disability.[11]

To shift the drive for diversity into the next gear, the federal government instituted the CBC.A Requirement for greater diversity build on our work for gender diversity to include diversity among people of colour, indigenous peoples and people with disabilities.

Of course, one major reason for the lack of diversity on boards is the recruitment process; male board members and male executives search their often male-dominated networks of compatriots and contacts for potential candidates, thus perpetuating the diversity gap. Mandating that companies actively consider diverse representation for board vacancies would force companies to broaden their search, get creative in their recruitment efforts, and go beyond their traditional networks to find candidates.

Requiring targets for women and people with other diverse characteristics at the consideration and interview stage of the board nomination process would ensure that underrepresented people are being considered fairly while still having the opportunity to demonstrate skill and merit to receive a directorship.

The existing amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices include a requirement for disclosure of the representation of women in the director identification and selection process (Item 12 of Form 58-101F1). The CBC.A Requirement expands that disclosure to indigenous people, visible minorities and people with disabilities. However, following the comply-or-explain model, this only requires companies to describe whether they have a policy on women representation on the board or explain why they do not have one. It does not mandate such a policy exist nor does it require the policy to have any specific targets or objectives.

B.C. could implement regulations requiring companies to have a policy regarding the representation of diverse representation in the director identification and selection process, and require such policies mandate that at least one qualified diverse representative is fully considered for all board vacancies. Such consideration should be required to be meaningful, conducted in good faith, and include any requisite interview or assessment process. Regulations such as these would have the benefit of forcing a change in the mindset in Canada’s boardrooms and could serve as a catalyst for progressive changes in corporate governance rules and eventually greater diversity outcomes.

Such a requirement could be enforced through the BC Securities Commission on issuers registered with that agency, and could be adopted more broadly by including such regulations in the Cooperative Capital Markets Regulatory System when the governments of British Columbia, New Brunswick, Ontario, Prince Edward Island, Saskatchewan, Yukon and Canada restart the implementation process.

Implementing Goals for Diversity on Boards

If we are to see faster change and overcome the significant headwinds of the status quo, then more aggressive goals for inclusion of women and people with diverse characteristics on boards should be considered.

In an effort to more significantly increase the representation of diverse representatives on corporate boards, many countries have implemented quotas which require a specific percentage or number of board seats be filled by diverse representatives. Imposing quotas, while arguably effective, is seen as a blunt method for encouraging gender diversity.

Similar to the federal government’s 50/30 Challenge, which Burnaby Board of Trade and the BC Chamber of Commerce to name a couple in the Chamber, B.C. could instead implement goals for businesses which move us towards gender parity and diverse representation on corporate boards. These goals should be developed in consultation with the business community and should be designed to be both realistic but also aggressive enough to result in meaningful change if achieved.

These goals should be made public to encourage not only greater discussion and awareness of the issue of gender diversity and overall diversity and inclusion, but also to create both peer and public accountability to drive action.

THE CHAMBER RECOMMENDS:

That the provincial government:

1. Adopt, via the BC Securities Commission, the “comply or explain” amendments to NI 58-101 “Disclosure of Corporate Governance Practices” regarding Gender Diversity and Term Limits;
2. Implement, via the BC Securities Commission, regulations that mandate reporting non-venture issuers to have board recruitment policies that require at least one qualified diverse representative is fully considered for all board vacancies, and advocate for the inclusion of similar regulations in the Cooperative Capital Markets Regulatory System currently being instituted. Such consideration should be meaningful, conducted in good faith, and include any requisite interview or assessment process; and
3. Commence a consultation with businesses and other stakeholders on implementing in B.C. clear goals for diverse representatives’ inclusion on corporate boards which moves them towards parity.