Securities regulators divided on proposed diversity reporting rules

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Canadian securities regulators want companies to provide more disclosure on their diversity – but the provinces seem deeply divided on what to require.

The Canadian Securities Administrators, an umbrella group for provincial securities commissions, said Thursday it will seek comment on proposed new rules modelled on nearly a decade-old regulations on gender diversity. Inspired by 2020 changes in federal law, the regulators want companies to go beyond gender to address how Indigenous people, racialized persons, persons with disabilities and LGBTQ people are represented on their boards of directors and executive officer ranks.

However, provincial securities administrators are divided on the best approach, and the CSA has published two new rule proposals for discussion, one more robust than the other.

One, supported only by the Ontario Securities Commission, would require companies to report on the number of members of each of the four designated groups, as well as women, on their boards and in executive officer positions. The rule would require companies to use a standardized table so investors could compare numbers. And companies would need to disclose any written strategy, policies and measurable objectives relating to diversity on their board.

The other proposal does not require companies to disclose diversity numbers. Instead, a company would only be required to describe its chosen diversity objectives and how it would measure progress. If an issuer collects data on specific groups “relevant to its approach to diversity,” the data would need to be disclosed, but no specific table or format would be required by regulators.

The CSA says securities regulators in British Columbia, Alberta, Saskatchewan and the Northwest Territories back this approach.

Meanwhile, regulators in Quebec, New Brunswick, Manitoba, Nova Scotia, Newfoundland and Labrador, Nunavut, Yukon and Prince Edward Island “have not expressed a preference at this time,” the CSA said in its explanation.

The second approach, the CSA says, “is based on a view that securities regulators should not select categories of diversity, other than women, preferring to leave that to the issuer’s determination as to what aspects of diversity are most beneficial to that issuer in advancing its business and strategy. In other words, a less prescriptive approach.”

In either approach, the provincial regulators are playing catch up to the federal government.

In 2020, the Canadian government issued new requirements for diversity disclosure for companies incorporated federally under the Canada Business Corporations Act. The rules expanded disclosures to cover visible minorities, Indigenous people and disabled people.

However, many of Canada’s biggest companies are incorporated at the provincial level, so the rules did not apply to them. (The Globe and Mail’s annual Board Games survey of governance practices adopted a question in 2020 based on the corporations act changes and applied it to all members of the S&P/TSX Composite Index.)

Canada’s approach to diversity has been called “comply or explain” because the country has not set mandatory diversity targets on boards, or even required companies to set them. But companies that do not set targets must explain their approach in their disclosures.

This has been inadequate, say diversity advocates, who have said the representation of women on boards has been inching up far too slowly. And they’re concerned a similar approach to other forms of diversity will yield similarly poor results.

“Comply and explain – to me, it’s a cop-out,” Wes Hall, who created the BlackNorth Initiative in 2020, told The Globe that year. “People who don’t want to comply with it will always find an excuse as to why they are not going to do it.”