We don’t need to wait for another year of data to know that boards aren’t anywhere near as diverse as the Canadian population. Office towers are shown in Toronto's financial district on June 27, 2018.Tijana Martin/The Canadian Press
Kevin Thomas is the chief executive officer of SHARE, a Canadian shareholder advocacy organization.
When an executive keeps deferring decisions in order to study a question further, we call it “analysis paralysis.” It’s often not a lack of factual information that’s holding up the decision, it’s a lack of will.
That’s exactly what seems to be happening with the executives of Canada’s securities regulators, who have been deferring decisions on new rules for board diversity disclosures for more than three years since they first held public consultations on the issue, and over a year since they wrapped up a second round of public consultations on proposed regulations.
During those three years and two rounds of public consultations, the facts haven’t changed.
Where we do have data, representation for women, visible minorities, LGBTQ+ people and people with disabilities on Canadian corporate boards continue to be far below the proportion of these groups in the Canadian population. A recent report from law firm Osler noted that the number of Canadian board seats held by visible minorities hasn’t changed in the past year, nor has the percentage of directors with disabilities. And the percentage of board seats held by Indigenous peoples increased by a scant 0.1 per cent.
What has increased during the past three years, however, is the urgency of regulating board disclosures.
For shareholders, the lack of accurate data on board diversity is an issue we confront every single year, when we have to vote for or against directors at the company’s annual meeting.
During the past few years, more and more large institutional investors and major shareholder voting agencies have adopted voting policies that look for ethnic or racial diversity on a company’s board, in response to the lack of significant movement from companies themselves. Shareholders rightly relate better board diversity with better-performing boards and better-performing companies, so these votes matter.
Accordingly, this year SHARE identified more than 1,200 votes against directors at 114 Canadian companies where the shareholder based their voting decision on perceived lack of diversity on those boards. Of those, more than 900 specifically cited a lack of racial or ethnic diversity, or diversity concerns across a spectrum of categories, which may include racial or ethnic diversity.
Were they good voting decisions? Possibly.
But absent regulated disclosures, some institutions were probably making do by looking at photos and names in the company’s report, rather than accurate data disclosed by the company.
While securities regulators have waffled on new regulations, Canadian investors struggle to evaluate a very basic question: whether Canadian corporations are diversifying their board membership or not.
That’s not serving shareholders, companies, boards or their directors very well.
When securities regulators concluded their second round of consultations, 77 organizations had submitted written opinions on the proposed rules, with institutional investors providing the largest number of comments. The vast majority of those investor submissions (88 per cent) favoured increased disclosure using a standardized, consistent format over an approach that essentially leaves it up to each individual company to decide what it discloses and what it doesn’t. Submissions from Indigenous-led organizations all favoured the same approach, as did 80 per cent of industry associations with diversity or inclusion as part of their mandate.
That should have been a clear signal for securities regulators, whose job it is to protect investors, to finally issue new rules for Canadian corporations – rules that actually clarify things rather than leaving investors with murky, inconsistent data.
Instead, 14 months later, we’re still stuck in limbo.
Further analysis isn’t going to change the facts. We don’t need to wait for another year of data to know that boards aren’t anywhere near as diverse as the Canadian population. We don’t need to wait for another year of annual general meetings to know that investors are going to have to record their votes based on inadequate information. We don’t need to wait for the perfect solution to drop in our laps.
We just need regulators to get the job done.