Canada is the first country to legally require diversity disclosure of more than just gender from corporations. These new regulations will be in effect for the 2020 proxy season. Make sure your board is fully educated on the new requirements before this busy season begins.
Which businesses need to comply with the new diversity disclosure requirements?
If your business is a for-profit corporation registered in Canada, it is governed under the Canada Business Corporations Act (CBCA). It needs to comply with the new requirements, which go into effect January 1, 2020.
Why were these requirements created?
Bill C-25 went into force in May of 2018. It made several amendments to the CBCA, including diversity information about senior management and directors being disclosed to shareholders prior to each annual meeting. While similar requirements exist under existing provincial securities laws, the diversity disclosure is limited to the number of women. The new disclosure requirements require diversity disclosure for all designated groups named in the Employment Equity Act, including persons living with disabilities and Indigenous people.
How do we follow the new diversity disclosure requirements?
The official text of the new requirements outlines very clearly what a corporation needs to do to comply. Numbers expressed in percentages need to be calculated for what percentage of both the board and senior management are members of designated groups under the Employment Equity Act, which are:
- Indigenous peoples
- Persons with disabilities
- Members of visible minorities
For example, if you determine that 20% of your board and 36% of senior management is composed of people that qualify as diverse, both of these numbers must be reported in management circulars prior to the annual meeting.
Measures for diversity implementation must also be disclosed
The numbers themselves are just the beginning. Other items that must be outlined are:
- Board Renewal Mechanisms
- The company must outline if it has adopted term limits or other methods for renewal of the board, or the reasons why it does not have them.
- Board Diversity Policy
A company must adopt a board diversity policy which gives the following information:
- a short summary of the policy’s objectives and key provisions,
- a description of the measures taken to ensure effective implementation
- a description of the annual and cumulative progress in achieving the objectives of the policy, and whether or not the effectiveness of the policy is measured and, if so, a description of how it is measured. If it does not have such a policy, it must explain why it does not have one.
- Board Nomination Diversity Measures
The board must disclose if it is considering the diversity of board members when nominating new directors, how it is doing so, and if not why not.
- Targets for Diversity of Directors and Executives
Targets must be adopted for diversity of both board members and senior management, with accrual progress being charted throughout the year. If these targets are not adopted and/or progress is not tracked, an explanation must be given as to why.
What other measures should boards take for 2020 proxy season?
The advisory firm Institutional Shareholder Services (ISS) found in its latest global benchmark policy survey that 61% of investors found board diversity to be essential. While the new CBCA requirements address diversity, they do not address the other items which ISS found in its survey.
Climate risk to a company’s business was given almost equal footing with diversity, with 61% of investors saying that they wanted to see risks associated with climate disclosed by corporations. In addition, 42% cited overboarding, or directors sitting on too many boards, as an issue. The ideal number according to the survey would be directors sitting on no more than four boards.
To address overboarding, a survey could be taken of board members to see how many boards they are sitting on. Measures can be put in place to replace “overboarded” board members through term limits or, if necessary, through firing them if they will not quit other boards.
Environmental risk assessment could be done annually, and a value attached and circulated prior to each annual shareholder meeting, as well as measures the company is taking to mitigate climate risk.
DiliTrust Exec: Easy board communication in advance of proxy season
Getting all of the numbers you need for the new CBCA disclosure requirements is simple with a board portal tool like DiliTrust Exec. Communication is all done through the tool rather than on individual emails, ensuring that each board member is securely receiving sensitive company information in advance of meetings. Contact us to find out how to empower your board with a digital tool that lets them meet from anywhere in the world and communicate securely.