The diversity of boards has become a target of greater scrutiny. This scrutiny has come not only from activist investors seeking higher returns and better governance, but from governments and various interest groups outside the corporation. It has homed in on a variety of director characteristics, including length of tenure, age, gender, and visible minority status. This post begins by discussing some of the latest metrics on board diversity in Canada. It then looks at some of the recent measures governments and regulators have been taking to increase diversity in the boardroom.
Length of tenure
According to a Financial Times analysis, the average length of tenure of directors for the Canadian companies studied is just above 7.5 years. This is among the longest length of tenure for the countries represented in the data. While the United States has a longer average tenure, at roughly 8.5 years, most European countries have lower average tenures, with Norway, Finland and the Netherlands each averaging roughly 4.5 years.
A 2015 study by Spencer Stuart, which looked at 100 TSX-listed companies with revenues over $1 Billion, states that the average age of non-executive Canadian directors was 63 as of 2015 (this study was previously discussed on this blog, in a post by Jenny Yoo). There is also some evidence that age has been increasing. For the companies in the study, the average age of non-executive directors in 2010 was 61.
In 2015, 19.5% of Canadian directors at FP 500 companies were women, according to the Canadian Board Diversity Council’s (“CBDC”) 2015 Report Card survey. This represents a 2.4% increase over 2014. While the Financial Times analysis suggests Canada has a slightly higher percentage of female directors than the United States (roughly 15%), the figure is significantly behind that in several countries, such as France (roughly 37%) and the Netherlands (roughly 42%)—though both have quota systems.
Visible minority status
The CBDC states 7.3% of directors at FP 500 companies report belonging to a visible minority. A paper by Anita Anand and Vijay Jog has suggested that roughly 5.5% of TSX directors belong to visible minorities.
There is increasing evidence that governments and regulatory agencies are willing to intervene in the area of board diversity. In Ontario, 2014 saw the introduction of a “comply or explain policy” on gender diversity by the OSC. Ontario Premier Kathleen Wynne has also encouraged companies to appoint more women to their boards, stating that by the end of 2017, companies are encouraged to set a target of appointing 30% women to their boards and achieve it within 3 to 5 years of setting it. Attention towards these kinds of measures is not confined to Canada. SEC Chair Mary Jo White indicated in a recent speech that SEC staff will be recommending that the SEC require “more meaningful” diversity disclosure on board members and nominees in proxy statements.
All of this suggests that issuers should be aware of the sharpening focus on the composition of their boards and prepared to explain how board members are chosen.
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The author would like to thank Joe Bricker, articling student, for his assistance in preparing this legal update.