As the official Senate Liberal critic for Bill C-25: An Act to amend the Canada Business Corporations Act, here is the presentation I gave, in the Senate Chamber on October 18, 2017, where I emphasized that while Canada proudly champions diversity as one of its main foundations, the lack of diversity in our largest corporations’ senior management and board of directors is a serious equality and societal issue. Moreover, if our companies do not reflect the social fabric of the markets they serve, it can also be an economic issue. A consensus corroborated by data is emerging that Boards including a diversity of backgrounds, experiences, and expertise outperform those that don’t. This speech was delivered as part of the Second Reading of Bill C-25.
Honourable senators,
I rise today as the official Liberal critic to speak at second reading of Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not‑for‑profit Corporations Act and the Competition Act.
The provisions of this bill are intended to harmonize the federal framework laws on corporate governance, and to adapt them to changes in the Canadian market and to best practices. They propose making the process of electing directors of certain corporations and cooperatives more democratic, and modernizing communications between corporations and their shareholders, and cooperatives and their members. They also propose a system to encourage some companies to increase the participation of women and diversity in their leadership.
My main concern relates to this last aspect of the bill. According to the text, corporations will have to place before the shareholders, every year, information on diversity among directors and the members of senior management.
First of all, I would like to congratulate the government on this proposal, which broadens existing standards for women at the federal level and for diversity in general.
Canada lags behind other developed countries in terms of women’s representation on corporate boards. In 2016, only 13% of the board members of Canadian companies listed on the Toronto Stock Exchange were women, compared with 16% in the United States and 26% in the United Kingdom for similar corporations.
Moreover, even though the proportion of women in leadership roles in Canadian corporations is increasing, progress is not very satisfactory. Three years after the Ontario Securities Commission moved forward with the comply-or-explain rule, board seats occupied by women in Toronto-Stock-Exchange listed companies only rose from 11 to 14.5% between 2015 and 2017.
As to women in senior management roles, in 2017 the percentage sits at 15% - and has since 2015. At this rate, how many decades will it take to reach equality? I’ll let you do the math…
As to diversity, the situation is even worse. In 2017, only 3.3% of the board members of Toronto largest companies belong to a visible minority. Yet visible minorities account for 50% of Toronto’s population!
While Canada proudly champions diversity as one of its main foundations, the lack of diversity in corporations is an equality issue. Moreover, if our companies do not reflect the social fabric of the markets they serve, it can be an economic issue. A consensus corroborated by data is emerging that boards including a diversity of backgrounds, experiences, and expertise outperform those that don’t.
Several studies have linked boardroom gender diversity with better financial performance. Not only Catalyst, an organization who promotes the advance of women in the workplace, reported that companies with the highest representation of women board directors outperformed those with the lowest representation of women.
Even a study conducted by Credit Suisse Group, one of the world leaders in financial services, has demonstrated that companies with more women in the boardroom bring better returns and outperform on the stock market. And according to a recent study by the Nordic banking group Nordea on 11,000 publicly traded companies across the world, companies with a female chief executive officer or a female head of the board of directors have superior annualized returns.
It is clear that, given the slow increase in women’s representation and diversity on corporate boards, we cannot simply rely on the natural progress of social norms and practices. We need legislation like this to bring about social change.
But can the diversity measures under this bill meet the scale of the challenge?
Allow me to share with you two major questions that these provisions raise and that the Committee should consider.
First of all, it is important to consider whether simple voluntary declarations by corporations on the existence of a diversity policy and diversity numbers are enough to speed up the increase in the representation of women on boards of directors, and especially in senior management.
If we want to gender parity by 2027 – a rather reasonable goal since women now make up 48% of the labour force and more than half of university graduates in Canada – should we not set out stricter measures?
Three years after the Ontario Securities Commission moved forward with the comply-or-explain rule for women, companies reporting having a written board diversity policy jumped from 34% in 2016 to 47% in 2017. But only 3% of companies have adopted targets for the number of women executive officers. The notion of merit is often given by corporations as an explanation for those poor results.
But since merit still continues to be unconsciously defined by stereotypically white male characteristics, the status quo hardly moves.
To truly accelerate change, should we go so far as to impose quotas? Or should we explore more prescriptive rules, with specific targets and penalties?
The second major question is focused on non-gender diversity: how can we reconcile the need to increase this diversity AND avoid the rigid, artificial and cumbersome side that diversity policies can have?
Should one let corporations have the flexibility to adopt diversity policies that are adapted to their markets and their communities?
Should corporations be free to choose to stick to the four minimum diversity criteria that will be set in the regulations: gender, indigenous people, visible minorities and people with disabilities? They could also of course set further criteria, such as experience or geographic background.
As to targets corresponding to each of those diversity criteria, should corporations be able to set them in proportions reflecting their sociological reality?
Those were my comments and questions on the diversity aspects of the bill, that I hope the Committee’s review and study can best answer.
Before closing, let me make a last comment on another aspect of the proposed legislation. I note that the bill does not include any provision requiring public companies’ shareholders “advisory say on executive pay”. This has been adopted in the United States and by the largest public companies in Canada. With the sky rocketing executive pay increases within the last couple of decades, contributing to the widening gap between top and bottom income levels, I would have expected such an advisory “say on pay” provision to be included. I trust that the Committee’s sober second thought review will also further study this possibility and its merits.
Thank you for your attention.