Discussions around board gender diversity are picking up steam in the lead up to the 2018 proxy season. Some of the leading proxy advisory firms, namely the Institutional Shareholder Services (ISS) and Glass Lewis & Co. LLC (Glass Lewis), appear to have caught wind of the discussions – both firms added a voting policy in respect of board gender diversity to their 2018 proxy voting guidelines for Canada.
The discussions around board gender diversity are not new. In late 2014 (and as reported on this blog), the Canadian Securities Administrators (CSA) published ‘comply or explain’ rules (the CSA Rules) regarding the representation of women in director and executive officer positions that were adopted by the securities regulatory authorities in a majority of Canadian provinces and territories. This approach requires TSX-listed issuers to disclose on an annual basis:
- the number and percentage of women on the board and in executive officer positions;
- director term limits or other mechanisms for the renewal of the board;
- policies relating to the identification and nomination of female directors;
- details on how the issuer or its board considers the representation of women in the director identification and nomination process and in executive officer appointments; and
- targets for women on the board and in executive officer positions.
Where these issuers have not adopted the aforementioned mechanisms, policies, or targets, or do not consider the representation of women, they must explain their reasons for not doing so. (We recently reported on the review of these disclosures made by certain Canadian securities regulatory authorities).
In response to the CSA Rules, the Canadian Coalition for Good Governance (CCGG) adopted its own board gender diversity policy. The CCGG finds the current CSA ‘comply or explain’ approach to be insufficient. Rather, the CCGG believes the current regulations should recommend the adoption of written board gender policies in the form of a corporate governance “best practices” guidelines.
The ISS and Glass Lewis seem to agree with the CCGG that the ‘comply or explain’ approach is insufficient. However, they differ slightly in their approach.
Beginning in 2019, the ISS will generally recommend withholding a vote for the nominating committee chair of the board of a TSX-listed issuer where (i) the issuer has not disclosed a formal written board gender diversity policy and (ii) there are no female directors on the board. The ISS further prescribes that the board gender diversity policy include a clear commitment to increase board gender diversity, avoiding boilerplate or contradictory language. Specifically, the board gender diversity policy should contain measurable goals and targets to increase board gender diversity within a reasonable period of time as well as a description of the processes used to monitor the issuer’s progress in meeting its goals and targets. Moreover, consideration will be given to the process used to consider gender diversity in executive officer positions. The ISS policy will not apply to newly publicly listed issuers within the current or prior fiscal year, issuers that have transitioned from the TSX-V within the current or prior fiscal year and issuers with four or fewer directors.
Glass Lewis, on the other hand, will, beginning in 2019, generally recommend withholding a vote for the nominating committee chair of the board of an issuer (including venture issuers) where (i) the issuer has not disclosed a formal written gender diversity policy or (ii) there are no female directors on the board. In contrast to the ISS policy, the Glass Lewis policy applies to all issuers (including venture issuers). Furthermore, Glass Lewis, unlike the ISS, does not describe what it expects to see included in a board gender diversity policy in order to refrain from recommending a withhold vote. However, Glass Lewis recognizes that it may, upon review of an issuer’s disclosure of its diversity considerations, refrain from recommending a withhold vote in the case of a venture issuer or where it is satisfied with the issuer’s rationale for why there are no female board members. This voting policy suggests that Glass Lewis even expects venture issuers to provide some degree of disclosure in respect of its diversity considerations despite not being required to do so by the CSA Rules.
In light of the CCGG, ISS and Glass Lewis policies towards board gender diversity, issuers would be wise to evaluate whether a formal written board gender diversity policy is appropriate in advance of the 2018 proxy season. Some factors that an issuer may want to consider in this evaluation include, among others, the size of the issuer, the size of the board, the industry, the competitors of the issuer and the current governance profile of the issuer (i.e. are the already-existing mechanisms sufficient to promote gender diversity). If it determines that the adoption of a formal written board gender diversity policy is inappropriate, the issuer should carefully describe its reasons against adoption in its public disclosure record.
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The author would like to thank Fahad Diwan, articling student, for his assistance in preparing this legal update.