Divided on diversity: alternative proposals from Canadian securities regulators to update diversity disclosure requirements

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On April 13, 2023, the Canadian Securities Administrators (the CSA) served up for comment two alternative approaches to updating diversity and director nomination process requirements under Canadian securities laws — neither of which is likely to satisfy investors. In this post, we summarize the two approaches that address diversity disclosure with respect to characteristics beyond gender. In our Osler Update, we consider these alternative approaches and the proposed updates to the director nomination process in more detail.

Form A: The ‘flexible’ approach

The Form A amendments are premised on providing issuers with flexibility — both to define “identified groups” (other than women) which are meaningful to the issuer’s diversity strategy and to design tailored approaches to achieving or maintaining diversity among its directors and executive officers. Form A contemplates narrative disclosure describing the issuer’s diversity objectives, mechanisms for achieving those objectives and any written policies, processes and targets adopted by the board relating to women and individuals from the identified groups. If the issuer collects data on the number and proportion of directors and executive officers from its identified groups, that information must also be disclosed.

Form B: The ‘standardized’ approach

Form B is a more prescriptive alternative that models the approach under the CBCA by mandating disclosure on targets and the representation of “designated groups” on the issuer’s board and holding executive officer positions. The designated groups for disclosure purposes align with the CBCA by including, in addition to women, racialized persons, Indigenous peoples, and persons with disabilities, but go beyond the designated groups under the CBCA by also including LGBTS2SI+ persons. Reporting on designated groups would be based on voluntary self-disclosure by directors and executive officers and disclosed on an aggregated basis. To further promote consistent and comparable diversity disclosure, Form B is largely premised on a standardized, tabular reporting format. Disclosure of the issuer’s written board diversity strategies, policies and objectives would be provided in narrative form.

Diversity is a multifaceted issue and a key challenge with respect to disclosure is deciding which diversity characteristics should be the subject of disclosure. A focus on certain categories or characteristics necessarily means that others will not receive attention.

Under the proposals, it would no longer be necessary to describe the responsibilities, powers and operation of the nominating committee. Instead, issuers would disclose whether the board has a written policy respecting the nomination process. If the board does not have a written policy respecting the nomination process, the issuer would have to explain how the board carries out the nomination process.

It is clear that the CSA have been unable to agree on a path forward to updating their existing approach to diversity disclosure. Neither alternative is likely to fully satisfy issuers, investors and other stakeholders. Investors and other stakeholders may be dissatisfied with the nature and extent of the disclosure likely to be provided under Form A, while Form B has certain limitations of its own.  We hope that the CSA will be able to settle on proposed rules that afford flexibility to issuers in describing their approach to diversity and director nominations, while still providing meaningful statistics on the representation of defined designated groups to provide sufficient comparability that allows for a meaningful assessment of an issuer’s progress on diversity on an absolute basis over time and relative to its peers and the market more broadly.

Read the full Update posted on May 25, 2023