Continued focus on diversity – What you need to know about the Canadian Securities Administrators’ proposed amendments

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Continued focus on diversity – What you need to know about the Canadian Securities Administrators’ proposed amendments

Continued focus on diversity – What you need to know about the Canadian Securities Administrators’ proposed amendments

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April 27, 2023

On April 13, 2023, the Canadian Securities Administrators (CSA) published a notice and request for comment (Notice) proposing amendments to Form 58–101 F1 – Corporate Governance Disclosure (Form 58–101 F1) and National Policy 58–201 – Corporate Governance Guidelines (NP 58–201) pertaining to diversity, board renewal and board nominations (Proposed Amendments). The comment period for the Proposed Amendments is open until July 12, 2023.

The primary objectives of the Proposed Amendments are to: (i) increase transparency concerning diversity, including diversity beyond women, on boards and in executive officer positions, (ii) provide enhanced, decision-useful information to investors to enable them to better understand how diversity connects to an issuer’s strategic decisions and (iii) provide guidance to issuers on corporate governance practices related to board nominations, renewal and diversity.

The proposed amendments

Two approaches towards diversity disclosure

The CSA has proposed two versions of Form 58–101 F1 for comment: “Form A” and “Form B.” Generally, both forms are aligned with respect to disclosure requirements for board nominations and board renewal; however, they each reflect different approaches to disclosing diversity-related disclosure.

While the CSA is considering adapting the Proposed Amendments to venture issuers, as of the date hereof, the forms would only to be applicable to non-venture issuers. The key components of each approach are set forth below.

FORM A	FORM B
Requires disclosure on an issuer’s approach to diversity in respect of the board and executive officers, but would not mandate disclosure in respect of any specific groups, other than women. For example, an issuer would disclose its chosen diversity objectives, how progress is measured, and the mechanisms in place to achieve these objectives. This can be achieved by collecting data with respect to specific groups the issuer identifies as being relevant for its approach to diversity and for comparability purposes. There is no required format on how to present this information; the approach taken in this form is intended to provide each issuer with flexibility to design practices and policies respecting how it will address diversity in its specific circumstances, and not requiring it to report data on any specific group.	Requires disclosure on the representation of five designated groups on boards and in executive officer positions., being: Women; Indigenous peoples; Racialized persons; Persons with disabilities; and LGBTQ2SI+ persons. An issuer may also choose to voluntarily provide disclosure in respect of other groups beyond the foregoing designated groups. All such data would be reported in a standardized tabular format to promote consistent and comparable disclosure. This information would be based on voluntary self-disclosure by directors and executive officers. In addition, this form would require disclosure regarding any written strategy, written policies and measurable objectives relating to diversity on an issuer’s board of directors.

FORM A

FORM B

Requires disclosure on an issuer’s approach to diversity in respect of the board and executive officers, but would not mandate disclosure in respect of any specific groups, other than women.

For example, an issuer would disclose its chosen diversity objectives, how progress is measured, and the mechanisms in place to achieve these objectives.

This can be achieved by collecting data with respect to specific groups the issuer identifies as being relevant for its approach to diversity and for comparability purposes.

There is no required format on how to present this information; the approach taken in this form is intended to provide each issuer with flexibility to design practices and policies respecting how it will address diversity in its specific circumstances, and not requiring it to report data on any specific group.

Requires disclosure on the representation of five designated groups on boards and in executive officer positions., being:

Women;
Indigenous peoples;
Racialized persons;
Persons with disabilities; and
LGBTQ2SI+ persons.

An issuer may also choose to voluntarily provide disclosure in respect of other groups beyond the foregoing designated groups.

All such data would be reported in a standardized tabular format to promote consistent and comparable disclosure. This information would be based on voluntary self-disclosure by directors and executive officers.

In addition, this form would require disclosure regarding any written strategy, written policies and measurable objectives relating to diversity on an issuer’s board of directors.

The key difference between the two forms is that Form B mandates disclosure on historically underrepresented groups, whereas Form A mandates disclosure only on women’s representation and is based on a view that securities regulators should not select categories of diversity; it instead defers to an issuer to determine what additional categories or aspects of diversity they wish to implement, based on the company’s business and strategy. Form B takes a similar approach to the Canada Business Corporations Act (CBCA) by mandating disclosure on specific “historically underrepresented groups,” while Form A follows a less prescriptive approach.

At this time, securities regulatory authorities in British Columbia, Alberta, Saskatchewan and the Northwest Territories support Form A, while the Ontario Securities Commission supports Form B. The remaining securities regulatory authorities have not currently expressed a preference on the public record for either of the proposed alternatives.

Board renewals and nominations

The proposed changes to NP 58–201 would provide enhanced guidelines for all issuers related to board nominations and would introduce guidelines on board renewal and board diversity, which complement the diversity disclosure requirements contained in Form 58–101 F1. The proposed NP 58–201 would address the following:

The responsibilities of the nominating committee;
The adoption of a written policy respecting the director nomination process;
The use of a composition matrix;
Effective succession planning and the mechanisms of board renewal, including term limits;
The adoption of a written diversity policy; and
Setting targets for achieving diversity on the board and in executive officer positions.

Similar to the approach of two forms, the CSA has proposed two versions of NP 58–201 for comment, “Policy A” and “Policy B.” The guidelines pertaining to board nominations and board renewal are harmonized in both Policy A and Policy B, but in regards to board diversity, the guidelines differ to match the corresponding versions of Form 58–101 F1 for the diversity-related disclosure requirements. These amendments include removing “he” or “she” references and replacing with “the director,” adding certain responsibilities to the nominating committee, implementing of board renewal plans and strategies, and implementing written diversity policies or processes to reach certain targets.

Call for action

There has been an increased focus amongst market participants on diversity on boards and executive positions, together with an expectation for action with an increase in shareholder activism in this area. As just a few examples, from a corporate law perspective, the CBCA was amended to require corporations to report on the representation of, at minimum, the following groups: women, Indigenous peoples, persons with disabilities and members of visible minorities. From a securities law perspective, and as discussed in our recent insight, the CSA published its year eight report (Report) on women on boards and in executive positions. The Report indicated a modest uptick in the overall percentage of women on boards and in executive positions. In January 2021, the Capital Markets Modernization Taskforce (Taskforce), established by the Ontario government, issued its final report suggesting, amongst other things, that Ontario securities legislation be amended to require that Canadian public companies set goals and implement timelines for diversity amongst directors and executive management, and report annually on the levels of representation at the board and executive management of those identifying as women, BIPOC, a person with a disability or LGBTQ+. Additionally, the Taskforce recommended that appropriate target levels for representation be at 50% for women and 30% for BIPOC, persons with disabilities and LGBTQ+. Further, in their annual proxy voting guidelines, proxy advisory firms such as the Institutional Shareholder Services and Glass Lewis increasingly recommend that shareholders vote for issuers who promote representation and diversity on their boards of directors, committees and in executive officer positions. In addition, securities regulators continue to highlight the importance of diversity through measuring the progress of women representation on boards and in executive positions.

It is against this backdrop that the Proposed Amendments, in whatever form they may ultimately be, Form A or Form B (for non-venture issuers), or Policy A or Policy B (for all issuers), that companies should prepare for the changes ahead. While issuers are starting to address diversity, there is an opportunity for more significant growth, as well as the potential for consequences for issuers who fail to adequately address any lack of diversity on their boards or within their management.

For more information on the Proposed Amendments, please contact co-authors Bill Gilliland, Ora Wexler, Daniela Acevedo, Kiana Mozaffari, or any other member of our Securities and Corporate Finance group.