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Canada: Higher Standards Set for Workplace Diversity

(Sept. 19, 2019) Effective January 1, 2020, all publicly traded companies regulated by the Canada Business Corporations Act (CBCA) must provide shareholders with details regarding the companies’ corporate policies on diversity among the board of directors and among senior management. In accordance with the passing of Bill C-25, An Act to Amend the Canada Business Competition Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, which received assent on May 1, 2018, federally incorporated companies must provide shareholders with information about their practices relating to workplace diversity. This includes showcasing the percentage of board members and senior management who are women, aboriginal people, people of color, and people with disabilities. The amendment to the CBCA fall within a “comply or explain” model—that is, affected companies that have not adopted policies regarding workplace diversity at the senior level must justify their decision. This arguably makes Canada the world’s first jurisdiction to require diversity disclosure beyond gender.

Background

Research has shown that, in Canada, women constitute 48% of the workforce, yet hold only an estimated 14% of all board seats and roughly 22% of the board seats at Financial Post 500 companies. In the Greater Toronto Area, over 50% of the population in 2015 were visible minorities. However, visible minority members accounted for only 12% of leadership roles and approximately 4.5% of senior leadership positions. When Navdeep Bains, minister of Innovation, Science and Economic Development, introduced Bill C-25 in 2016, he expressed the belief that it is the government’s moral duty to promote diversity and inclusion, stating that “[i]n the boardroom, as in life, taking into consideration viewpoints from a variety of perspectives can lead to innovative thinking and better performance. Innovation requires fresh ideas, new ideas, and the best ideas can come from anyone, anywhere.”

Provisions of the Bill

Bill C-25 must be read alongside the Regulations Amending the Canada Business Corporations Regulations, 2001, registered on June 25, 2019. The objective of the Regulations is to bring into force the diversity disclosure provisions of Bill C-25.

Section 24 of Bill C-25 adds section 172.1 to the CBCA. Section 172.1 reads as follows:

Diversity in corporations

172.1  (1)  The directors of a prescribed corporation shall place before the shareholders, at every annual meeting, the prescribed information respecting diversity among the directors and among the members of senior management as defined by regulation.

Information to shareholders and Director

(2)  The corporation shall provide the information referred to in subsection (1) to each shareholder, except to a shareholder who has informed the corporation in writing that they do not want to receive that information, by sending the information along with the notice referred to in subsection 135(1) or by making the information available along with a proxy circular referred to in subsection 150(1).

Information to Director

(3)  The corporation shall concurrently send the information referred to in subsection (1) to the Director.

Amendments to the Regulations Amending the Canada Business Corporations Regulations, 2001 provide further clarification about the upcoming changes regarding CBCA companies. The addition of part 8.2 to the Regulations provides specifications about corporate disclosure relating to diversity. Part 8.2 clarifies the definitions of terms such as “designated groups,” “major subsidiary,” and “members of senior management.” Interestingly, the definition of “designated groups”—“women, Aboriginal peoples, persons with disabilities and members of visible minorities”—is taken directly from section 3 of the Employment Equity Act.

Regulatory amendments also specify the need for companies to divulge detailed information regarding corporate practices to shareholders. For instance, affected corporations will be expected to provide shareholders with the following:

  • Written policy about the identification and nomination of directors from designated groups.
  • Details on whether the level of representation of designated groups is considered when nominating individuals for director roles.
  • Quantitative objectives for representation on the board.
  • The number of directors, presented in percentages, from each group listed in the definition of “designated groups.”
  • Reasons justifying the lack of a diversity policy if a company doesn’t have one in place.

Reactions to the Bill

Both the Liberal Party and the Conservative Party support the legislation. Members of the New Democratic Party (NDP), however, are of the belief that the bill is ineffectual because it does not address appointments by the federal crown. For this reason, after the introduction of Bill C-25 in September 2016, NDP MP Sheila Malcolmson subsequently introduced Bill C-220, An Act to Amend the Financial Administration Act (Balanced Representation).

Prepared by Haviva Yesgat, Law Library intern, under the supervision of Tariq Ahmad, Foreign Law Specialist.