It's fall, which means it's time for the annual Canadian Securities Administrators staff review of disclosure made by public companies under Form 58-101F1 Corporate Governance Disclosure, particularly as it relates to gender diversity among corporate leadership. The 2018 review is the fourth such annual review, with previous reviews having been published in 2015, 2016, and 2017.
Here are the five things you should know about the 2018 staff review. For more details, access the full publication of CSA Multilateral Staff Notice 58-310 Report on Fourth Staff Review of Disclosure regarding Women on Boards and in Executive Officer Positions. Publication of the review's full dataset follows later in the fall. In this post, the term "public company" refers to a reporting issuer captured in the 2018 staff review.[1]
1) Total seats occupied by women remains low
The bottom line of the 2018 staff review is that women continue to represent a tiny minority of public company director seats. The first staff review in 2015 revealed that 11% of board seats were held by women. The 2018 review shows that number has increased – but only to 15%.
The increase so far has been middling, but will things improve going forward? The 2018 review found that only 29% of director vacancies were filled by women. This is an increase over 26% in 2017, but it remains low. Ontario Securities Commission Chair Maureen Jensen has noted that even if the fill-replacement for women among directors increased to 50%, it would still take 30 years to reach parity.
One area of improvement is that the number of public company boards with at least one woman has reached 66%, up from 49% in 2015. However, research suggests that boards require at least three women directors to mitigate perceptions of tokenism. Only 13% of public company boards have at least three women directors, an increase from 8% in 2015.
2) Cap size matters (and so does industry)
Large-cap public companies tend to have more gender-diverse boards than small-cap companies. For companies with a market capitalization of greater than $10 billion, 25% of board seats are filled by women, compared to just 11% for companies worth less than $1 billion. Every cohort has improved since 2015, but not by much.
A public company's operating industry also has a major impact on the gender makeup of its board. 89% of public companies in manufacturing have at least one director on their board. For public companies in retail, the proportion is 84%. At the other end of the spectrum, only 56% of public companies in each of biotechnology and oil & gas have even a single woman director. Other industries are somewhere in between.
3) Companies are target-shy
Public companies continue to be reluctant to set targets in respect of board gender diversity: just 16% of boards reported setting targets in the 2018 review. On the other hand, one of the most significant changes over the past several years relates to the adoption of policies regarding the representation of women on boards: 42% of public companies now report the adoption of such a policy, compared to just 15% in 2015. Finally, a strong majority (73%) of public companies now report that they at least consider the representation of women as part of the director identification and selection process.
4) Among executive teams, more of the same
An equally important issue is the representation of women in executive roles. 66% of public companies reported having at least one woman in an executive officer role in the 2018 review, an increase from 60% in 2015. However, only 4% of companies disclose having adopted a target in respect of the representation of women among executive officers, up from 2% in 2015.
5) The future is unclear
After four years, many more companies have at least one woman on their boards, but otherwise the numbers have not shown much improvement. What happens next – will securities regulators take further action?
Perhaps. The CSA reports in the 2018 staff review that it is now actively assessing whether additional measures are necessary, including changes to the disclosure requirements, and whether supplemental guidelines should be included as recommended practices in National Policy 58-201 Corporate Governance Guidelines.
Meanwhile, non-government actors in Canada and abroad aren't waiting to act:
- Both ISS and Glass Lewis have amended their proxy voting guidelines for Canadian public companies regarding women on boards – running afoul of guidelines could result in a "withhold" recommendation for members of a board's nominating committee.
- The Canadian Gender and Good Governance Alliance was launched in 2018, which includes as members several of the most powerful corporate lobby groups in Canada. The CGGGA encourages public companies to adopt a diversity policy and to set a target percent of women directors.
- In the USA, major institutional shareholders like BlackRock, State Street Global Advisors, CalSTRS, and CalPERS have shown an increasing willingness to take on public companies and vote against intransigent boards for their failure to improve diversity. The results are evident: 49% of constituents on the S&P 500 now boast having three or more women directors.
- In California, SB-826 was signed into law by Governor Jerry Brown. The bill sets minimum quotas for women directors among public companies headquartered in California, although it may face legal challenges.
The federal government has also been active on this file. Bill C-25, which amends the Canada Business Corporations Act, was enacted into law in May 2018. Draft regulations proposed by Corporations Canada would make two major changes to the diversity disclosure regime in Canada. First, all CBCA companies, not just those required to do so under National Instrument 58-101 Disclosure of Corporate Governance Practices, would be required to disclose the information required by Form 58-101F1. Second, the scope of diversity would be expanded beyond just gender to include at least indigenous persons, persons with disabilities, and visible minorities. The draft regulations have not yet been published for comment in the Canada Gazette.
We will continue to monitor developments in this dynamic area of law.
Footnote
1 Note that the CSA staff reviews do not include all reporting issuers. The 2018 staff review's population includes, generally, all TSX-listed issuers and other non-venture issuers with year-ends between December 31, 2017 and March 31, 2018, and which filed information circulars or annual information forms by July 31, 2018. Refer to section 2 of NI 58-101 for the full explanation of what triggers the required disclosure thereunder.
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