SECURITIES REGULATION AND IR

On July 30, 2013, the Ontario Securities Commission (“OSC”) issued OSC Staff Consultation Paper 58-401 – Disclosure Requirements Regarding Women on Boards and in Senior Management (the “Consultation Paper”) seeking input on a proposal that would require companies listed on the Toronto Stock Exchange[1] to provide disclosure regarding gender diversity. Specifically, the OSC is seeking feedback on the following questions:

• What are effective policies for increasing the number of women on boards and in senior management?

• What type of disclosure requirements regarding women on boards and in senior management would be most appropriate and useful?

• Are the proposed scope and content of the model disclosure requirements described in the Consultation Paper appropriate? Are there additional or different disclosure requirements that should be considered? Please explain.

• What types of statistics, data and/or accompanying qualitative information regarding the representation of women in their organization should non-venture issuers be required to disclose? Should such disclosure be reported for the non-venture issuer only or for all of its subsidiary entities also?

• What practices should we recommend for facilitating increased representation of women on boards and in senior management?

• For example, should we recommend that non-venture issuers have a gender diversity policy? If so, should we set out recommended content for the policy?

• Should non-venture issuers be required to comply with the recommended practices or explain why they have not complied (i.e. a “comply or explain” model of disclosure)?

The comment period for the Consultation Paper ended on September 27, 2013. In addition, the OSC plans to engage with stakeholders on this matter by convening a roundtable (or similar forum) in the fall of 2013.

Currently, there is no guideline in National Policy 58-201 – Corporate Governance Guidelines that explicitly addresses the representation of women on boards and in senior management, and reporting issuers are not required to explicitly disclose the percentage of women on their boards or in senior management or their policies on gender diversity. Reporting issuers are, however, required to describe the process by which the board identifies new candidates for board nominations, under National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”).

The Consultation Paper canvassed the approaches taken in the United States, Australia, United Kingdom and various European countries regarding gender diversity.

The OSC is considering amending NI 58-101 to require that non-venture issuers, other than investment funds, provide disclosure on an annual basis in the following four areas: (i) policies regarding the representation of women on the board and in senior management; (ii) consideration of the representation of women in the director selection process; (iii) consideration of the representation of women in the board evaluation process; and (iv) measurement regarding the representation of women in the organization and, specifically, on the board and in senior management.

Under the OSC model, an issuer should disclose whether it has a policy for advancing the participation of women in senior management roles and/or for the identification and nomination of female directors.

If a policy has been adopted, the issuer should

• provide a summary of its key provisions or disclose the policy;

• set out how the policy is intended to advance the participation of women on the board and in senior management of the issuer;

• explain how the policy has been implemented;

• describe any measurable objectives that have been established under the policy;

• disclose annual and cumulative progress by the issuer on achieving the objectives of the policy and, where the objectives are measurable, disclose progress in quantitative terms; and

• describe how the board or its nominating committee measures the effectiveness of the policy.

If the issuer does not have such a policy, it should explain why not and identify any risks or opportunity costs associated with the decision not to have such a policy.

Issuers should explicitly indicate whether, and if so, how, the board or its nomination committee considers the level of representation of women on the board in identifying and nominating candidates for election or re-election to the board. If the issuer does not take the representation of women into account in this process, it should explain why not and identify any risks or opportunity costs associated with the decision not to do so.

If an issuer has a policy regarding the representation of women on the board and/or in senior management, it should disclose whether and how adherence to the policy or achieving any objectives set out in the policy are assessed in connection with the annual evaluation of the effectiveness of the board and the nominating committee. The issuer should disclose the proportion (in percentage terms) of female employees in the whole organization, women in senior executive positions[2] and women on the board.

In a nutshell, the OSC’s model is a “comply or explain” model as opposed to a mandatory regime adopted in certain European countries. Australia also has a “comply or explain” model of disclosure for gender diversity. In the United States, issuers are required to disclose their approach to diversity but to date the Securities and Exchange Commission has chosen not to define diversity so issuers may address diversity as they choose.

Understandably, there will be much analysis of the OSC’s model of disclosure regarding gender diversity. However, if we start from the proposition that encouraging gender diversity in the leadership of public companies is a good thing, then I wish to draw your attention to the following statistics. In 1992, in Norway, women held approximately 3% of directorships in publicly listed companies. By 2008, women held over 40% of such directorships,[3] the highest percentage in the world at that time. This change occurred as a result of legislative intervention by the Norwegian government.