Notice & Request for Comment on Proposed Amendments to Diversity Disclosure Requirements and Corporate Governance Guidelines

On April 13th, 2023, the Canadian Securities Administrators (CSA) issued a notice and request for comment (the Notice)[1] regarding proposed changes to diversity and board nomination and renewal disclosure rules and best practice guidelines for issuers listed on the Toronto Stock Exchange (or certain other senior stock exchange), as provided in:

(1)   Form 58-101F1 Corporate Governance Disclosure (58-101F1) of National Instrument 58-101 Disclosure of Corporate Governance Practices; and

(2)   National Policy 58-201 Corporate Governance Guidelines (NP 58-201).

The CSA will collect comments until September 29th, 2023 [2].

Background

The proposed changes will amend and build on the current diversity disclosure requirements, which have been in place since 2014. The current rules require only disclosure on gender diversity, while the proposed changes include required disclosure for additional diverse groups.

Proposed Changes to 58-101F1 

Reflecting a lack of consensus among the CSA, the CSA is seeking comment on two alternative proposals for the amended 58-101F1, being the corporate governance disclosure requirements for non-venture issuers,[3] with the alternate forms providing different approaches to enhanced diversity disclosure (Form A and Form B).[4] The existing disclosure requirements for women on boards and in executive officer positions would be substantially maintained in both versions, including disclosure of the number and proportion of women on the board and in executive officer positions.

Key elements of and differences between the proposed Form A and Form B are outlined below.

Form A: Identified Groups

Form A takes a less prescriptive approach to diversity disclosure and does not prescribe the categories of diversity or the groups for whom disclosure is required (other than for women). Rather, Form A allows the issuer to set its own "identified groups", being groups of individuals with shared personal characteristics, which are part of the issuer's diversity strategy. This approach aims to provide the issuer with flexibility to design diversity practices and polices most beneficial to it.

An issuer would be required to describe its approach to achieving and maintaining diversity, how it measures progress, and the mechanisms it has determined are appropriate for it to achieve its diversity objectives, for both the board and executive officers. Disclosure of data with respect to specific groups identified by an issuer as relevant to its approach to diversity (other than women) would only be required if the issuer chooses to collect such data and, if collected, may be disclosed in a manner determined by the issuer.

Form B: Designated Groups

Form B mandates diversity reporting on the representation of five "designated groups", being women, Indigenous peoples, racialized persons, persons with disabilities and LGBTQ2SI+ persons, on boards and in executive officer positions. While requiring disclosure with respect to these identified groups, it would allow issuers to voluntarily provide disclosure with respect of other groups, if desired.

Reporting would be required in standardized tabular format with respect to the designated groups. Form B would also require issuers to disclose any written strategy or policy regarding achieving or maintaining diversity as well as other measurable objectives for the board, while not requiring it for executive officers.

Board Nomination & Renewal Process

The Proposed Amendments also include amendments relating to the board nomination process and board renewal, which are largely consistent between Form A and B. These include requiring disclosure of:

• Any written policy relating to the board nomination process, or if one has not been adopted, how the nomination process is carried out (including in the case of Form B, nominations from the designated diversity groups);
• How the board manages any conflicts of interest that may arise in the nomination process;
• Whether the board has a composition (or skills) matrix for the board and the skills, knowledge, experience, competencies and attributes of candidates that are considered in evaluating board candidates; and
• How the board addresses board renewal, including any term limits or other mechanisms of board renewal adopted (and if term limits have not been adopted, why not).

Application

Consistent with existing disclosure requirements relating to representation of women, the proposed new diversity disclosure requirements would not apply to venture issuers, although the CSA is seeking comment on whether to consider developing similar disclosure requirements for venture issuers.

Proposed Changes to NP 58-201

There are two forms of amended NP 58-201, which are similar, however they differ slightly to align with the corresponding Form A and Form B.

The proposed amendments to NP 58-201 address:

• responsibilities of the nominating committee;
• written policy respecting the director nomination process;
• the use of a composition matrix;
• effective succession planning and the mechanisms of board renewal, including term limits;
• the written diversity policy; and
• targets for achieving diversity on the board and in executive officer positions.

Next Steps

The CSA is looking for issuers to weigh in on whether they foresee any concerns with any of the proposed amendments, including whether they prefer the proposed Form A or Form B of 58-101F1, and whether they believe that similar requirements should be developed and applied to venture issuers.[5]

Securities regulators in British Columbia, Alberta, Saskatchewan and the Northwest Territories have expressed their support for the less prescriptive approach of Form A, while the Ontario Securities Commission supports Form B. Securities regulators in the other jurisdictions have not expressed a preference at this time. Given the unusual approach taken by the CSA (publishing two alternative sets of new rules), the comments received from stakeholders may have a significant impact in reconciling the divergent proposals. We encourage stakeholders to consider responding to the CSA's request for comments, in particular, the preferred approach to diversity as presented in the alternate Form A and Form B.

If you would like any additional information and/or if we can assist you in formulating your comments on the proposed disclosure changes or answers to CSA's questions, please contact any member of our Business Law Group.

[1] Click here for full text of the Notice.

[2] When the Notice was initially released, the comment period was set to end on July 12, 2023, however on June 28, 2023, the CSA announced that the comment period would be extended to September 29, 2023.

[3] Venture issuers are issuers that are not listed on the TSX or certain other senior stock exchange.

[4] Form B is similar to the CBCA diversity disclosure rules which came into force in 2020, and which include a description of who falls under "designated groups".

[5] See page 7 of the Notice for CSA's questions.