Investors, regulators looking at board diversity beyond gender

Canadian public companies will have a year to get in line with new, tougher board gender diversity guidelines from leading proxy advisory firms or face a withhold vote against the chair of their nominating committee.

As of Feb. 1, 2022, Institutional Shareholder Services will expect S&P/TSX Composite issuers to have at least 30% women board members, or a written gender diversity policy with a commitment to achieve that percentage over a “reasonable” time frame. It will also withhold a vote for the nominating committee chair for “widely held” companies that aren’t on the index if the company doesn’t have any women on the board and has no formal written gender diversity policy.

Glass Lewis, meanwhile, will require all TSX-listed issuers to have at least two female directors as of Jan. 1, 2022. Boards with six or fewer members can continue to meet the firm’s existing voting policy of a minimum of one female director.

During the 2021 proxy season, both ISS and Glass Lewis will note issuers that don’t yet meet their requirements.

“Impacted companies have this year to get prepared or revisit their board composition and policies in anticipation of the new guidelines that will kick-in the following year,” said Rima Ramchandani, partner at Torys LLP and co-head of the firm’s capital markets practice, in an interview with The Northern Miner.

According to Ramchandani, the changes demonstrate investors’ growing focus on public companies’ board diversity — and a recognition that seven years after the Ontario Securities Commission implemented a “comply or explain” rule requiring companies to disclose information related to gender diversity on their boards or explain why they had none — issuers aren’t as far along as they should be.

According to Osler, Hoskin and Harcourt LLP’s 2020 diversity disclosure practices report, women hold 31.5% of all board seats at S&P/TSX 60 companies (up from 22% in July 2015), and 28.3% of board seats at S&P/TSX Composite companies. On the broader TSX that number is lower, at just 21.5% (up from only 10% in July 2015).

“Even in the TSX Composite index …. there’s still a big percentage of those issuers that haven’t gone as far as I think the institutional investor community would like,” said Ramchandani.

The mining industry reported the second worst board diversity — ahead only of energy services companies — with an average of 13% female representation on boards, and an average of 0.9 women directors, the Osler report found.

“There is a disparity that exists currently in terms of issuers in the mining space versus the TSX more broadly,” said Carly Klinkhoff, an associate at Torys in the firm’s mining and metals group. “I think it will be interesting to see over the next year whether there’s some movement there, because I think mining issuers have a longer way to go.”

But major miners are quickly making progress. A report from Catalyst and the 30% Club found that at the end of 2019, roughly 10 mining companies on the S&P/TSX Composite — including Agnico Eagle Mines (TSX: AEM; NYSE: AEM), Alamos Gold (TSX: AGI; NYSE: AGI), Cameco Corp. (TSX: CCO; NYSE: CCJ), Detour Gold, Teck Resources (TSX: TECK.A/TECK.B; NYSE: TECK) and Yamana Gold (TSX: YRI; NYSE: AUY; LSE: AUY), had at least 30% women directors.

ISS’s new guidelines will force issuers to adopt clear targets if they don’t yet meet the threshold. While targets are associated with a higher likelihood of achieving board diversity, public companies in Canada had long resisted implementing them out of concern that it would compromise meritocracy.

But in the years since “comply or explain,” attitudes seem to have shifted significantly. An August 2020 survey of 500 capital markets professionals by Women in Capital Markets found 92% of respondents are in favour of requiring public companies to adopt targets for women and Black, Indigenous and people of colour (BIPOC) representation and annually disclose data.

Despite this, just 28.8% of TSX-listed companies have adopted targets for women directors, the Osler report said. (This is much higher for S&P/TSX 60 companies, at 58.5%.)

Cameco Corp.’s board diversity policy includes “measurable objectives” for at least one Indigenous director from Saskatchewan, 30% women and board members of various ages, backgrounds and expertise. According to Anne McLellan, an independent director at Cameco Corp. who chairs the company’s nominating, corporate governance and risk committee and is a former deputy prime minister, it was important to the company to have targets its shareholders and stakeholders could hold it accountable to.

“This is important enough to us, and we see the value for the company and the communities we serve in establishing these targets. And we will meet these targets and be held accountable for these targets,” she said in an interview. The company currently has four women directors — representing 40% of the board — and an Indigenous director from Saskatchewan, Points Athabasca Contracting non-executive chair Donald Deranger.

McLellan noted the company also has board term limits of 15 years and age limits, which ensure the board is continually renewed. (McLellan’s 15-year term at Cameco will end in May.)

Alamos Gold, on the other hand, didn’t set targets to reach 30%. According to David Fleck, an independent director who chairs the company’s corporate governance and nominating committee, fostering a more diverse board was part of Alamos Gold’s natural evolution as it became a major producer.

“Part of that growing up phase was trying to create a board structure and a governance structure that reflected that,” he said. “When we get into discussions of diversity, that’s part of that process. … We’re going to continue to grow and improve the board’s capabilities and that includes adding more voices, more diverse voices, to the board. I would not be surprised if in the not-too-distant future you will see a continuation of that.”

Fleck agreed the conversation on targets is changing, and said he wouldn’t be surprised if they became legislated in the future. “I personally understand there’s a growing thought that intentions are not enough and that there has to be, perhaps, more pressure exerted. … In the context of Alamos, we’re going down that road [to a more diverse board] anyhow.”

While public issuers have long been used to discussions of women’s representation on boards, there’s a growing investor and regulatory focus on making sure boards include directors who are BIPOC, LGBTQ+ and people with disabilities.

“Over the past five to 10 years, certainly the desire on the part of civil society for publicly traded companies [to diversify their boards] has grown, as it should,” said McLellan. “This movement cannot be separated from what you see happening in civil society generally, in terms of a desire for greater equity and fairness, and to ensure that whether you’re a legislature, a publicly traded company or a university, that you are drawing upon all the skills, all the perspectives, all the productive capacity that our society offers.”

According to ISS’s 2020 global benchmark policy survey, 73% of investors polled want all companies to disclose the demographics of their boards, including directors’ self-identified race and ethnicity. While the proxy firm stuck to focusing on gender diversity in Canada, it’s gone further in the United States, by updating its guidance for Russell 3000 and S&P 1500 index companies. This year, it will highlight boards that lack racial or ethnic diversity, or any disclosure. In 2022, the firm will recommend a vote against the chair of the nominating committee for companies with no racial or ethnic diversity.

While proxy firms may be slower to move in Canada, the federal government, as of January 2020, requires public companies to provide disclosure on the representation of women, Indigenous people, people with disabilities and members of visible minorities under amendments to the Canada Business Corporation Act. According to Osler’s analysis of the first year of that data, provided by 213 CBCA companies, just 5.5% of board positions were held by members of visible minorities, 0.5% were held by Indigenous peoples and 0.4% were held by people with disabilities.

The recent final report from the task force charged with modernizing Ontario’s capital markets went even further. It recommended the province amend its securities legislation to require public companies set diversity targets and timelines for achieving them, with suggested targets of 50% women directors and 30% board members who are BIPOC, people with disabilities and LGBTQ+.

Meanwhile, corporate Canada voiced its support for broader diversity last summer with the BlackNorth initiative. Leaders from more than 300 companies worth $1 trillion in value — including public and private sector companies, banks, insurers and institutional investors — pledged to promote “the elimination of anti-Black systemic racism wherever it exists,” with recommendations including fostering “inclusiveness for Black leaders at the board level, as well as senior management and executive levels.” Members committed to a minimum of 3.5% executive and board roles being held by Black leaders by 2025. (Three and a half per cent of Canadians are Black, according to Statistics Canada.)

“This is all burbling and I expect we’ll continue to see focus on this from regulators or lawmakers, and ultimately proxy advisory firms,” Ramchandani said.

McLellan said Cameco is currently evaluating its diversity policy with an eye to “what’s happening in the broader community and civil society.” While the company doesn’t plan to recruit a new director in the coming year to replace her, she said that will give it “ample time to reflect on what our policy does say, what’s happening under the CBCA or the capital markets [task force]…and figure out what is best for Cameco going forward.”

— Kelsey Rolfe is a freelance journalist based in Toronto. She has written about the mining sector for more than five years and was previously a section editor at CIM Magazine in Montreal.