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An Ontario task force established to conduct a review of the province’s capital markets has backed away from proposals in a July, 2020, interim report that would have compelled public companies to meet specific diversity targets in their board and executive management teams.

A final report from the Capital Markets Modernization Taskforce, released Friday, instead proposes what its chair, the Bay Street lawyer Walied Soliman, calls a “market-driven diversity framework,” where shareholders will hold companies to account for their performance, or lack thereof, on diversity.

This comes after the group received some pushback from industry about the government imposing a “one-size-fits-all solution” for diversity in all public companies, according to Mr. Soliman.

The task force does, however, have suggestions on diversity goalposts for corporate Canada. It recommends, for example, that publicly listed issuers meet a 50-per-cent target for women on boards and in executive management within the next five years and a 30-per-cent target for BIPOC (Black, Indigenous, and other people of colour), LGBTQ+ and persons with disabilities within the next seven years, with specific emphasis on Black and Indigenous representation.

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But the targets are not binding, meaning that companies will not be mandated under provincial securities legislation to meet these quotas. The task force suggests that the law should be amended but only to require public companies to set their own targets, report them, and come up with a timeline for implementing those targets.

“Issuers are used to being in a position where they are used to setting their targets and trying to meet them. When they don’t, shareholders get upset. When they do, shareholders are happy. So we thought this is the right balance to have in place,” Mr. Soliman said.

Since 2014, TSX-listed companies have been required to disclose data on representation of women on boards and in executive officer roles, but not on race or sexual orientation. Moreover, companies have never been mandated to have any gender or diversity targets.

“Investors are increasingly demanding data on diversity on boards and in executive officer positions to make informed investment and voting decisions,” the report states. “From the Taskforce’s public consultation, many commenters support corporate board diversity beyond gender and agree that board renewal is important to enhancing diversity.”

Diversity – particularly racial diversity – has long been lacking in the upper echelons of Bay Street. A study of 213 companies registered under the Canada Business Corporations Act, for example, showed that only 5.5 per cent of all public company directors were visible minorities. Directors who identified as Indigenous made up just 0.5 per cent of public company boards.

“We wanted to give companies some goalposts, but we also wanted to leave it up to them. The concern is if we got specific about numbers, they would just do the minimum,” said Wes Hall, the executive chairman and founder of Kingsdale Advisors, who is also a member of the task force. Mr. Hall leads the BlackNorth Initiative, a pledge that commits leaders and their organizations to specific targets around diversity, designed to end anti-Black systemic racism.

Mr. Hall said the committee chose the 50-per-cent and 30-per-cent figures for women and BIPOC respectively because it was proportionate to the demographic makeup of Canada. “See in the past, there were really no proper guidelines on how to achieve these targets. Now there is a standard so there is really no excuse for businesses to say ‘we didn’t know,’ ” he added.

The task force has also called for changes that, Mr. Soliman says, will do away with some of the barriers that prevented companies from improving diversity within their ranks. The group is calling for reduced maximum term limits of 12 years for independent directors, which it hopes will increase turnover. “We hope that will lead to turnover in the coming decade that will resolve in some of the very positive diversity initiatives,” he said.

The committee collected submissions from almost 130 organizations, lobbying groups and publicly listed companies across Canada on 47 proposals to modernize Ontario’s capital markets, some of which were obtained by The Globe and Mail recently.

A submission to the task force from the TMX Group last September took issue with publicly listed companies being singled out for enhanced compliance on the diversity front. “We suggest these new obligations should apply regardless of whether these large companies are public or private,” the letter said.

The Canadian Bankers Association opposed legislatively mandated diversity targets, arguing at the time that meeting “prescriptive targets” would be “technically challenging” while simultaneously balancing corporate governance requirements.

Both entities told The Globe and Mail that they were supportive of the diversity recommendations in the final report.

Mr. Hall believes that Canada has lagged significantly when it comes to change of all kinds, beyond just diversity. “That’s why these goalposts are important. We need to pick up the pace, and this is a good way to nudge these companies along. The companies that are laggards, will continue to be laggards, and investors will realize it.”

With a report from Greg McArthur

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