Taking stock on diversity: OSC hosts virtual roundtable on targets, term limits, and data
On October 13, 2021 the Ontario Securities Commission (“OSC”) hosted a virtual roundtable titled “Rethinking Diversity in Capital Markets” (the “Roundtable”). The Roundtable was moderated by Wendy Berman, Vice-Chair of the OSC, and discussed diversity beyond gender on corporate boards and in executive officer positions. In particular, the Roundtable considered broader diversity with a focus on targets, term limits, and diversity data.
The Roundtable is one of the first instances of public engagement by a Canadian securities regulator since the Canadian Securities Administrators (“CSA”) announced on May 19, 2021 that it would conduct further research and consultations with issuers, investors, and other stakeholders on its consideration of broader diversity.
The Roundtable and other instances of research and consultation by the CSA are intended to help determine whether, and how, the disclosure needs of Canadian investors, and corporate governance practices among public companies, have evolved since the gender diversity requirements set out in National Instrument 58-101 - Disclosure of Corporate Governance Practices (“NI 58-101”) were adopted in 2015. Our analysis of NI 58-101, including formerly proposed amendments, can be found here.
The following are key themes and takeaways from the Roundtable. Please contact Wendi Locke, Will Horne, or Gurvir Sangha to discuss the potential impact of securities regulations concerning diversity on your business.
Key themes emerging from the Roundtable
Diversity disclosure would benefit from an expanded definition of diversity –Panelists welcomed the recent expansion of diversity disclosure requirements for CBCA corporations that incorporated disclosure regarding Indigenous peoples, persons with disabilities, and visible minorities, and emphasized the importance of further broadening the scope of diversity disclosure to include LGBTQ2S+ and other groups. Establishing a national standardized definition of diversity to be used for corporate, securities, and employment law purposes was also suggested as a useful means of ensuring standardized and transparent diversity disclosure.
Searchable and consistent disclosure is essential to increasing transparency – Panelists noted the importance of making diversity disclosure more transparent for all users with recommendations including the use of standardized and searchable web forms and tabular data to promote accessibility and consistency. Although less user-friendly, panelists recognized the value that narrative disclosure can provide in allowing reporting issuers to discuss elements of diversity that are critical to their business and provide details on their current and future goals, policies, and plans for diversity and inclusion.
Expanding diversity disclosure beyond the board and senior management level – Given the narrow scope of current diversity disclosure rules, some panelists were not surprised that diversity statistics among reporting issuers have not improved significantly to date. To get a more accurate snapshot of diversity within a particular issuer, identify pipelines of diverse talent, and capture trendlines in diversity over time, it was recommended that reporting issuers also disclose diversity information regarding lower levels of management.
Diversity targets are a necessary element of tracking and managing progress towards diverse leadership – By setting quantifiable and time-defined diversity targets to which issuers could commit, panelists noted that it would become easier to track progress towards improving diversity among and across issuers. While all panelists spoke in favour of diversity targets, some advocated for securities regulators to set them while others believed that reporting issuers should be given the latitude to set their own diversity targets, following guidance from securities regulators and recommendations from other governmental and civil society initiatives like the Government of Canada's 50-30 Challenge.
Term limits for directors are less effective in promoting board diversity – While useful tools for enabling board renewal, panelists noted that director term limits are less effective in promoting board diversity. Data has shown that the roadblock to diversity is not opening up more board seats but rather filling those seats with a diverse set of individuals. Instead, panelists suggested that robust succession planning and the implementation of a skills matrix that balances diversity, fresh blood, and institutional knowledge in director recruitment would better serve to promote diverse hiring at the board level. In contrast, commentators from the OSC noted that term limits combined with strong social momentum for diverse leadership can nonetheless provide an important signal about the dispensability of entrenched directors and the need to incorporate diverse perspectives at the board level.
The bottom line
The Roundtable is among the first efforts by the OSC and other Canadian securities regulators to engage the public on the topic of broader diversity, which is of increasing importance to institutional and retail investors as well as the public at large.
As momentum around ESG continues to build, so does the expectation for diverse corporate leadership. With regulators at home and abroad dedicating resources to strengthening diversity disclosure standards and requirements, Canadian companies - both public and private - have an opportunity to reflect on how they can diversify their governance. While the existing diversity disclosure requirements are generally quite narrow in scope, roundtables like this one signal an opportunity for companies to strengthen their disclosures in preparation for legislative and regulatory changes coming down the pipeline.
We’re here to help
McCarthy Tétrault has a multidisciplinary ESG and Sustainability team that is equipped to provide clients with a full suite of advice and support to assist them in integrating ESG thinking into their organizational DNA. With a robust understanding of business, industry, and market drivers, we are well-suited to provide contextualized guidance. Please contact Robert Richardson, Wendi Locke, Will Horne, or Gurvir Sangha to learn more – we would be happy to assist you.