Thoughts on DEI in Canada, UK, and USA

You may recall that in 2020, the Canadian Business Corporations Act (CBCA) required that distributing corporations have to disclose the representation of four designated groups (women, indigenous people, racialized people, and persons with disabilities) defined in the Employment Equity Act, on their board of directors and senior management team. In October of the same year, institutional investors overseeing assets over $2.3 trillion signed the Canadian Investor Statement on Diversity & Inclusion, demonstrating commitment to combat systemic inequities and advancing DEI initiatives.

This year April 2023, Canadian Securities Administrators (CSA) is seeking public comment on the proposed amendments to Form 58 - 101 F1 Corporate Governance Disclosure of NI 58 - 101 and proposed changes to NP 58 - 201 Corporate Governance Guidelines relating to the director nomination process, board renewal and diversity. They are seeking an extended scope of disclosure regarding diversity beyond just the representation of women while keeping the current disclosure requirements regarding gender intact. The public comment was closed on July 12 and reopened till September 29, but engagement with the local regulators is ongoing.

CSA states that the amendments and changes were informed by two years of consultations, research, and reviews. Then proposed/presented two versions of Form 58-101F1 for comment (Form A and Form B). Both Forms share alignment when it comes to disclosure requirements concerning board nominations and board renewal. Their purpose is to increase transparency regarding DEI beyond women in both board and executive officer roles, equipping investors with valuable information to gain a deeper understanding of an issuer’s approach to diversity. However, they adopt distinct approaches regarding the disclosure that issuers must provide in relation to diversity.

Form A would require an issuer to disclose its approach to diversity concerning the board and executive officers, without enforcing the requirement to disclose details about specific groups except for women. Form B comparable to CBCA, envisions mandatory reporting on the representation of five designated groups, which encompass women, Indigenous peoples, racialized persons, persons with disabilities and LGBTQ2SI+ persons, on boards and in executive officer positions. While feedback is being sought for both forms, specific jurisdictions have shown a clear preference for one proposal over the other; British Columbia Securities Commission, Alberta Securities Commission, Financial and Consumers Affairs Authority of Saskatchewan, Office of the Superintendent of Securities of Northwest Territories favour Form A, whereas Ontario Securities Commission supports Form B, and other jurisdictions will follow to express a preference.

Additionally, the proposed changes to NP 58-201 offer improved guidance for issuers regarding board nominations, board renewal, and diversity. These guidelines are meant to complement the disclosure requirements in Form 58-101 F1, encouraging issuers to consider and adapt them to their unique circumstances while striking a balance between investor protection and efficient capital markets. Two versions of NP 58-201, Policy A and Policy B, were available for feedback, with both harmonizing guidelines for board nominations and renewal, but differing in their approach to board diversity in line with Form A and Form B disclosure requirements, respectively.

COMPARATIVE ANALYSIS

The 2022 Laurel Hill Trends in Corporate Governance reported that Canadian boards are gradually paying attention to overall diversity beyond gender disclosure as the “S” in the ESG rises. Meanwhile, a year before Institutional Investors (State Street and ISS) in the US revealed an amendment to its voting policy, introducing new directives for racial and ethnic diversity within the S&P 500 and Russell 3000 or S&P 1500. According to the reviewed policy, if a company within the S&P 500 and S&P 1500 fails to disclose at the very least, the gender, racial, and ethnic makeup of its board, they may cast a vote against the Chair of the nominating committee.

The UK Boardroom Bellwether Summer 2023 report states that, “The FTSE Women Leaders Review published in February 2023 revealed that 40.2% of FTSE?350 board positions are now held by women, with ‘the vast majority having three or more women on their board.’ This is striking progress from only 12 years earlier.” Meanwhile, the average representation of women on boards within TSX Composite Index companies increased from 31.1% in 2021 to 33.6% in 2022, and this trend is expected to continue with a slight rise. Anticipations suggest that in 2024, there will be even more growth among the other designated groups, as CBCA will be reviewing its requirements in 2025, as CSA will be closing out on its proposed amendments, as institutional investors review their policies, as ICD/TMX 2022 report calls for both management and boards to be fully committed to DEI, and as GCP/WATSON/GPC Key Trends in Corporate Governance 2022 reviewed that the top significant corporate issues is diversity and equity with 36% respondents.

This is also evidenced in the UK Summer 2023 report stating that “In the 2023 survey, over three-quarters of the FTSE?350 respondents (77%) consider their board ethnically diverse. The FTSE?100 has performed slightly better, with 92% of respondents considering their board ethnically diverse. For the FTSE?250, only 60% of respondents answered that their board is ethnically diverse. This represents a huge improvement when compared to responses from previous years. In the summer of 2021 and 2022, respectively, 55% and 63% of respondents considered their board members ethnically diverse.”

In conclusion, regarding diversity beyond gender in the US, boards are required to actively seek individuals with diverse expertise, skills, knowledge, and backgrounds. Another illustrative example is Nasdaq's board diversity rule, approved by the SEC in 2021, mandating publicly traded firms to disclose their board's diversity in either their annual proxy statements or on their websites. Furthermore, by either 2025 or 2026, contingent on their listing tier, the majority of Nasdaq-listed companies will be required to have, or provide a rationale for not having, a minimum of two diverse directors. This entails one identifying as female and another as either an underrepresented minority BIPOC, or LGBTQ+.