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The Ontario Securities Commission has proposed a new rule that would require companies to report annually on their policies to add more women to their boards and executive ranks.
The new rules unveiled Thursday will also require companies to report on their term limits for directors, which would bring Canada in line with many other countries that have also required companies to disclose whether they have term limits for their boards. Proponents argue term limits help ensure there is more board turnover so new directors -- including women -- can be added to the mix.
Companies are also being asked to report on whether they have voluntarily adopted targets for women on their boards or in executive roles.
The new rules follow a “comply or explain” model that the OSC indicated last year it favours for its gender diversity standards. Such a model does not require companies to add women to their boards or adopt a diversity policy, but requires them to explain why they have opted not to comply with the recommendation.
“Our proposed amendments are intended to encourage more effective boards, and better corporate decision-making, which will benefit investors and the capital markets,” OSC chairman Howard Wetston said in a statement Thursday.
“This is about helping TSX-listed issuers tap into a pool of talented and capable resources currently under-represented on today’s boards and senior management.”
Although the rules are being adopted only by Ontario’s securities regulator, they will have wide application in Canada because they will apply to all companies listed on the Toronto Stock Exchange, which is based in Toronto.
Alex Johnston, executive director of women’s advocacy group Catalyst Canada, said the OSC’s rule is “a great Canadian model” that suits the country’s corporate culture. It makes the standards voluntary -- rather than imposing a quota on boards that would be highly unpopular -- but includes enough “meaty” detailed reporting requirements to ensure it pushes companies to look seriously at their diversity practices, she said.
“I think they nailed it,” Johnston said. “I think they understand the Canadian corporate culture, where we’re at right now, and I think they’ve chosen an approach that for now works well.”
Johnston said it is important that the OSC intends to review the rule in three years to assess its effectiveness, which creates a time frame for companies to show progress on the issue or potentially face more proscriptive OSC rules.
“I think they are part of a very significant corporate culture shift that is taking place, and I think they have given Canadian corporations a huge opportunity to get this done in a way that works for them in a way that gives them flexibility to do it and do it right,” she said.
The OSC announced last July it intended to introduce a new rule for women on boards after being asked by the province’s Liberal government to consider new rules to help encourage companies to add more women.
The government has argued that research shows more gender diversity in corporate leadership is correlated with better corporate performance. Finance Minister Charles Sousa said in a statement Thursday the new rules “will also help attract new investment and grow our economy.”
Teresa Piruzza, Ontario’s minister responsible for women’s issues, said the OSC’s new rules “represent another step toward breaking through barriers and creating a more representative corporate Ontario.”
The Globe and Mail’s annual Board Games governance report published in November found that women comprise 12 percent of directors on the boards of Canada’s largest companies in the S&P/TSX composite index, a number that barely changed from 11 percent two years earlier.
The commission published a consultation paper and accepted public submissions last year on what should be included in the new regulations. The proposed rules will be open for public comment for 90 days until April 16.
The OSC also surveyed about 1,000 companies listed on the TSX about their diversity. Of the 448 companies that replied, 57 percent said they had no women directors and only 3 percent said they had three women directors. Women held less than 10 percent of executive officer positions at 53 percent of the companies.
Over 80 percent of the companies said they do not publicly disclose the proportion of women in the organization or in executive officer positions, and 82 percent said they do not have a policy on director term limits. More than 90 percent said they do not have a policy for the identification or nomination of women directors, and 94 percent said they had no targets for the representation of women on the board or in executive roles.