Securities regulators say firms' silence on provisions for identifying women as board nominees may not fulfill disclosure rule amendments
The demand for greater transparency about corporate board practices isn’t just an American phenomenon.
Nearly a year ago, Canadian securities regulatory authorities implemented amendments to their Disclosure of Corporate Government Practices that require corporate disclosure of the number and percentage of women on issuers’ boards of directors and in executive officer positions. Companies are now also required to report information on term limits for board members or other mechanisms of board renewal. If companies choose not to comply, they must explain why not.
‘These disclosure requirements aim to increase transparency and, for the first time, put information in front of investors on the representation of women on boards and in executive officer positions,’ Huston Loke, director of corporate finance at the Ontario Securities Commission said in an email interview.
In addition, companies must disclose policies relating to the identification and nomination of women directors; consideration of the representation of women in the director identification and nomination process and in executive officer appointments and targets for women on boards and in executive officer positions.
Earlier this week, securities regulatory authorities across Canada published CSA Multilateral Staff Notice 58-307, a review of progress made in company disclosures about women on their boards and in their C-suites. The notice summarizes the results of Staff's review of disclosure of more than 700 issuers listed on the Toronto Securities Exchange with year-ends between December 31, 2014 and March 31, 2015 after the implementation of disclosure rule amendments.
So, how did the companies do?
Nearly half of the companies have at least one woman on their board and 15 percent have added one or more women to their board this year, while 60 percent have at least one woman in an executive officer position. Size matters. Over 30 percent of issuers with a market cap above $2 billion have adopted a written policy for identifying and nominating women directors, and nearly half (48 percent) of those said their policy was adopted or updated this year. Sixty percent of issuers with a market cap above $2 billion have two or more female directors and 19 percent have adopted director term limits, while 56 percent have adopted other mechanisms of board renewal.
‘While we saw several examples of issuers that went above and beyond what is required, many issuers are still not providing the meaningful disclosure we expect,’ says Loke.
In the new Staff notice, regulators provide a playbook of sorts for companies to enhance the quality of their disclosure. When reporting the number of women on the board and in executive officer positions, regulators suggest using a table to show current and prior year numbers side by side so that investors and other stakeholders can track annual and cumulative progress towards targets. Regulators want disclosed numbers to reflect the number of women and total persons on the board and in executive officer positions as of the date of the information and the target column should reflect the target in effect for the disclosure period, or indicate that no targets have been adopted.
Only 11 percent of the companies under review disclosed a general diversity policy lacking specific provisions for identifying and nominating women candidates to the board., Regulators responded with guidance that says that policies without such specific provisions may not meet the requirements of the Rule.
Regulators offered an example of the kind of disclosure that doesn’t pass muster:, ‘The board has adopted a diversity policy, given its commitment to the principles of diversity and its recognition of the importance of diverse backgrounds, skills and experience and the representation of women when considering potential candidates who have the core skills and qualities for serving on our board. The board works with the corporate governance and nominating committee when assessing candidates and considers all of these characteristics.’
Companies gave various reasons in defense of why they had not adopted targets for women. Nearly two-thirds (66 percent) said candidates are selected based on merit, while others said targets would be either ineffective, arbitrary, or would be unduly restrictive and would reduce flexibility.
Regulators emphasized the need to disclose specifics, such as ‘the corporation has set a target of increasing the number of women on the board to two (25 percent) by 2017 and a minimum of three (38 percent) by 2020. Management and the nominating committee will build and maintain a list of potential qualified women for consideration as future board appointments.’
The guidance takes away the guesswork. ‘We urge issuers to review the guidance in our review,’ says Loke. Translation: the demand for transparency is not a passing fad and regulators intend to be relentless. ‘Over the next three years, we will continue to track the performance of issuers in this area, conduct reviews to encourage issuers to make meaningful disclosure, and publish additional guidance if it is required.’
