Canada’s top firms now have to disclose figures on diversity in the boardroom, but is ‘sunlight the best disinfectant’?
By Manini Sheker, Research Officer, Johnston Centre for Governance
Starting in January 2020, amendments to the Canada Business Corporations Act (CBCA) will require publicly-traded companies to publish information on their diversity policies. The move is in line with a global push to increase the representation of women and minorities on corporate boards.
In Canada, the number of S&P/TSX Composite Index (TSX Index) directors who are ethnic minorities remains low. In 2018, Canadian citizens who were visible minorities made up 19% of the Canadian population, but only accounted for 5% of TSX Index directors. The figures are somewhat better for women who comprise just over half of the Canadian population, but hold 24% of all board seats. Though companies are not required to disclose the percentage of indigenous people on their boards; a 2017 report by the Canadian Board Diversity Council found that indigenous people hold 1% of board seats in Canada’s top 500 companies. There is no specific disclosure for Canadians with disabilities on boards.
As in the US, Canadian corporate governance has been largely regulated through mandatory disclosure requirements rather than direct government intervention. In 2020, Canadian publicly-listed companies will have to reveal their diversity policies and targets as well as the number of women, visible minorities, indigenous peoples and people with disabilities on their boards and in senior management.
The CBCA amendment aligns with current Canadian securities law which has required Toronto Stock Exchange companies to disclose details about the representation of women on boards and in senior management since 2014 – but now also extends to other minorities.
A 2018 report published by the Johnston Centre (formerly the Clarkson Centre for Business Ethics) examined whether the 2014 disclosure requirements for women on boards had a tangible effect on the actual number of women on boards. Though disclosure had overwhelmingly improved from 2014 to 2017, the total number of board seats held by female directors on TSX 60 boards had only increased marginally from 21% of 25%. A closer examination of four companies without formal gender policies yielded mixed results. One company had increased the proportion of women on the board while the other three successfully defended their position not to adopt board gender diversity policies with shareholders leading to the eventual failure to pass the policy. Furthermore, even companies that had adopted gender diversity policies with specific targets did not necessarily show a commitment to achieving gender parity in the long run. Overall, the disclosure requirements had no discernable effect on the representation of women on TSX Index boards.
Thus, while disclosure requirements are helpful in codifying progressive behaviour in the boardroom and exposing companies to greater public scrutiny, progress in getting women into the boardrooms of Canada’s largest companies remains slow and fragmented. As a result, there has been a renewed call for enforced gender-based quotas, though there is also research to suggest that some voluntary mechanisms can enable significant change.
In the UK, a 2017 government-backed review has gone one step further than Canada by setting a target for companies on the stock exchange. FTSE 100 companies have been told to end ‘all-white’ boardrooms by appointing at least one director who is a visible minority by 2020. FTSE 250 companies on the stock market, have until 2024. Although the target is voluntary, companies that do not comply will have to explain why.
A similar voluntary target set in 2011 to increase the proportion of women on FTSE 100 company boards from 12.5% to 25% within four years proved to be highly successful. By 2015, the percentage of women on FTSE 100 boards had more than doubled to 26%, prompting the government to set a revised target to have women on one-third of all board seats in Britain’s largest companies by 2020.
In Canada, it remains to be seen whether the latest changes to the Canada Business Corporation Act will uphold the verity of Louis Brandeis’ claim ‘that sunlight is the best disinfectant, electric light the best policemen’ or whether more strident measures are necessary to make Canada’s boardrooms diverse. The British precedent of challenging companies to eliminate deficits in measurable ways might prove to be far more effective in galvanizing meaningful change.
[Photo credit: Government of Ontario via twitter]