Diversity of Boards of Directors and Senior Management of Federal Distributing Corporations – 2022 annual report

From: Innovation, Science and Economic Development Canada

Table of contents

• Executive summary
  • Findings
• Background
  • What must be disclosed
  • Key highlights and reporting challenges
  • Other initiatives to increase diversity in corporate leadership
• Scope of review
  • Description of the sample size
• Methodology
• Findings
  • Term limits and other mechanisms for board renewal
  • Written policies for identifying and nominating members of designated groups for directors
  • Consideration of the level of representation of designated groups
  • Targets for representation of designated groups
  • Representation of designated groups among boards of directors and senior management teams
  • Composition of distributing corporations’ boards of directors and senior management teams
• Conclusion
• Related information

Executive summary

Under the Canada Business Corporations Act (CBCA), distributing corporations^{Footnote 1} (including venture issuers^{Footnote 2}) must report to shareholders and Corporations Canada on the representation of women, Indigenous peoples (First Nations, Inuit and Métis), members of visible minorities and persons with disabilities on their boards of directors and among their senior management.

This Corporations Canada report presents findings from our third-year review of the levels of diversity on corporate boards of directors and among senior management in federal distributing corporations.

For 2022, we identified 536 distributing corporations required to disclose diversity information. We reviewed 498 proxy circulars^{Footnote 3} filed by distributing corporations for a meeting held in 2022. This report presents the findings of that review, showing the levels of diversity on corporate boards of directors and senior management teams for the year 2022. It compares results from 2022 to results compiled in 2021 and presents key highlights.

In general, the 2022 findings show slight progress in the levels of diversity on senior management. Among boards of directors, while there has been some improvement on representation, the percentage of overall board seats filled by women and members of visible minorities decreased slightly.

Findings

Background

Diversity on boards of directors and among senior management is a significant corporate governance question in Canada and other countries. According to the Employment Equity in the Public Service of Canada, 2020–2021 report, 52.7% of the Canadian population available to work are women, 4% are Indigenous, 15.3% are members of visible minorities and 9% are persons with disabilities.^{Footnote 4}

The Government of Canada introduced measures to support the push for increased diversity on corporate boards and among senior management. Since January 1, 2020, distributing corporations governed by the Canada Business Corporations Act (CBCA), including venture issuers, are required to provide their shareholders and Corporations Canada with information about the representation of women, Indigenous peoples (First Nations, Inuit and Métis), members of visible minorities and persons with disabilities on their boards of directors and among senior management.

What must be disclosed

Distributing corporations must disclose diversity information using a “comply or explain” approach. They must indicate if they have a policy on diversity and provide a summary of the policy if one exists; if they do not have a diversity policy, they must explain why this is the case. This approach, while not prescriptive, enhances the conversation between management and shareholders about the benefits of diversity and fosters steady progress toward more diverse corporate leadership.

Information to be disclosed includes, but is not limited to:

• whether the corporation has adopted term limits or other mechanisms for board renewal;
• whether the corporation has a written policy on the identification and nomination of directors from designated groups and, if so, a description of the policy;
• whether and how the board or nominating committee considers diversity when identifying and nominating candidates for election or re-election to the board;
• whether and how diversity is considered when making senior management appointments;
• whether the corporation has set targets for representation on the board and among senior management for each of the designated groups and, if so, progress in achieving those targets;
• the number and percentage of directors from each of the designated groups on the board and among senior management.

Distributing corporations are required to report on the representation of the 4 designated groups identified under the Employment Equity Act—women, Indigenous peoples, visible minorities and persons with disabilities—on their boards of directors and senior management teams. A corporation's senior management team includes any of the following:

• Chair and vice-chair of the board of directors
• President of the corporation
• Chief executive officer and chief financial officer
• Vice-presidents in charge of a principal business unit, division or function, such as sales, finance or production
• Anyone who performs a policy-making function within the corporation

The requirements under the CBCA are broader in scope than those under provincial securities legislation, which address only the representation of women on boards and in executive officer positions.

Key highlights and reporting challenges

Yearly findings enable us to measure progress and trends year over year. Monitoring both these factors helps promote conversations between corporate management and shareholders on this important issue and fosters steady progress toward more diverse corporate leadership.

Self-identification

One of the challenges related to determining which federal corporations are "distributing" (and therefore required to disclose diversity information) is that corporations are required to self-report whether they are distributing or not. We have provided further guidance to corporations to help them better self-identify when filing their annual return. For both 2021 and 2022, we identified 536 distributing corporations required to file diversity information.

Incomplete information

There continues to be ongoing challenges in getting a complete picture of diversity, as the disclosure requirements set out in the CBCA and related regulations do not specify how distributing corporations should disclose this information. In 2022, an average of 9% of the required diversity information disclosed by distributing corporations was incomplete or not provided in a standardized way, making it difficult to compile accurate representation statistics. However, there has been an improvement over the 2021 average of 13%.

Standardization

To better support corporations, we published guidelines on February 3, 2021, to help and encourage distributing corporations to disclose their diversity information annually in a more consistent manner. Despite the publication of these guidelines, there is still a significant lack of standardization in how corporations disclose their diversity information.

Awareness

In 2022, we launched a campaign that involved contacting corporations 90 days prior to their proxy filing date to remind them of their diversity disclosure obligations and to disclose information as recommended by our guidelines. Corporations that did not send us their proxy circulars after the filing date were contacted again. Despite our outreach, some corporations still may not know of the guidelines.

Distributing corporations are more familiar with the guidelines in 2022 than they were in 2021 (year 2 of the filing requirements). Throughout 2022, we reached out to 461 distributing corporations to inform them of the diversity disclosure requirements and how to file their proxy circular with us. These efforts resulted in an increase of filings over the last year.

Due to awareness-raising activities, more distributing corporations recognize the need to file their proxy circular with us even if they have filed it with the System for Electronic Document Analysis and Retrieval (SEDAR). In other words, they now understand that the exemption from the filing of certain documents does not exempt them from filing their proxy circular with Corporations Canada if they have filed it with SEDAR. This year, 407 distributing corporations (versus 339 in 2021) filed their proxy circular with us, while 91 (versus 136 in 2021) filed only with SEDAR.  

Other initiatives to increase diversity in corporate leadership

The 50 – 30 Challenge is an initiative of the federal government that encourages organizations to increase the diversity of their boards of directors and senior management teams. It proposes targets of 50% women and non-binary people, and 30% members of other equity-deserving groups.

Scope of review

Description of the sample size

For 2022, we identified 536 distributing corporations that are required to disclose diversity information. However, this number is approximate.

We reviewed the proxy circulars of 498 distributing corporations that were prepared for shareholders for an annual meeting held in 2022 and were filed with us or SEDAR. Of the proxy circulars reviewed, 450 (90%) included information on diversity. Of the 48 that did not include any diversity information, 39 were filed by venture issuers and 9 by non-venture issuers.

Methodology

Most distributing corporations chose to disclose diversity information in a narrative way in their proxy circulars. We reviewed each proxy circular, extracted the required diversity information and compiled it. We considered the information as provided in the proxy circulars that were either sent directly to us or filed with SEDAR. The number of directors on the boards and total number of members of the senior management teams were considered as of the date of disclosure. References to “executive officers” were considered to be equivalent to “senior management”.

The following elements were not considered:

• Numbers and percentages regarding the future composition of the boards of directors (e.g., nominees for directors) or among senior management teams (e.g., candidates for promotion to senior management)
• Numbers and percentages for groups other than the designated groups
• Information that did not specifically relate to the diversity disclosure requirements

This method of reviewing the proxy circulars allowed us to address the challenges related to the lack of standardization in how the information was reported by ensuring diversity information was analyzed in a consistent way. It also allowed us to generate findings and measure trends and progress on the representation of women, Indigenous peoples, members of visible minorities and persons with disabilities on boards of directors and senior management teams against the baseline established in 2021.

Findings

This section presents a summary of our findings for 2022 in each of the following key areas and a comparison with results compiled in 2021:

• Term limits and other mechanisms for board renewal
• Written policies for identifying and nominating members of designated groups for directors
• Consideration of the level of representation of designated groups
• Targets for representation of designated groups
• Representation of designated groups among boards of directors and senior management teams
• Composition of distributing corporations’ boards of directors and senior management teams

Findings are based on the 450 proxy circulars that were compiled and reviewed (173 from venture issuers, 277 from non-venture issuers) that included diversity information. The 48 proxy circulars that did not provide diversity information are not included in the findings.

Most findings presented in this report are for distributing corporations (venture issuers and non-venture issuers) that disclosed diversity information. However, for some requirements, the findings distinguish the two types of distributing corporations. Where there are significant differences between the two, this may be explained by the fact that the diversity disclosure requirements are still new to venture issuers.

It should be noted that, within each table, a corporation may be counted in more than one category.

Term limits and other mechanisms for board renewal

Figure 1. Distributing corporations that have adopted term limits or other mechanisms of board renewal

Of the distributing corporations that disclosed diversity information, 17% have adopted some form of mechanism for board renewal. Some have adopted more than one mechanism for the renewal of their board, while 4% reported age limits, 7% reported tenure limits and 0.2% reported other mechanisms.

In 2022, distributing corporations that indicated they have adopted a form of mechanism for board renewal decreased by 2 percentage points (from 19% in 2021 to 17% in 2022).

Among those that had not adopted term limits or other mechanisms for board renewal, the top reasons cited were:

• It forces valuable experienced and knowledgeable directors to leave.
• It reduces continuity or experience on the board.
• It’s not required because the corporation regularly assesses board members for effectiveness.
• It’s not in the best interest of the corporation or shareholders.

Written policies for identifying and nominating members of designated groups for directors

Figure 2. Distributing corporations with written policies on the identification and nomination of members of designated groups for directors

In 2022, one-third (34%) of the distributing corporations that disclosed diversity information have adopted written policies relating to the identification and nomination of women for directors. Twenty-eight percent (28%) of distributing corporations have adopted similar policies for Indigenous peoples, 29% for members of visible minorities and 28% for persons with disabilities.

In 2022, venture issuers that have adopted a written policy for identifying and nominating all diversity groups have decreased by an average of 6 percentage points (from 14% in 2021 to 8% in 2022). However, there are still substantial differences in the policy adoption rates between venture issuers and non-venture issuers. Non-venture issuers were more than 5 times as likely (49%, or 137 corporations) to adopt a written policy relating to the identification and nomination of women directors as venture issuers (9%, or 15 corporations).

The main reasons provided for not adopting written policies relating to the identification and nomination of women for directors are essentially the same for all distributing corporations (venture issuers and non-venture issuers):

• Informal procedures are in place.
• A policy prevents the selection of the most qualified candidates.
• A policy is currently under review by the corporation.
• A policy is not in the best interest of the corporation or shareholders.
• The size of the corporation and/or its stage of development make it difficult to adopt a policy at this time.

Consideration of the level of representation of designated groups

Board of directors

Figure 3. Distributing corporations that consider the level of representation of designated groups on boards of directors when identifying candidates for election or re-election

Distributing corporations that considered the level of representation of women on their boards of directors increased by 5 percentage points in 2022 (from 65% in 2021 to 70% in 2022). Twenty percent (20%) of the distributing corporations disclosed that they have not considered it.

Also, distributing corporations that have considered the level of representation on their boards of directors for Indigenous peoples, members of visible minorities and persons with disabilities increased by an average of 5 percentage points in 2022 (from 58% in 2021 to 63% in 2022).

The average percentage of venture issuers that considered a level of representation on their boards of directors for any of the diversity groups has decreased slightly by 3 percentage points in 2022 (from 61% in 2021 to 58% in 2022). The average of non-venture issuers that considered a level of representation on their boards of directors for any of the diversity groups increased by 11 percentage points in 2022 (from 58% in 2021 to 69% in 2022).

The main reasons for not considering the level of representation of designated groups on boards of directors are essentially the same for all distributing corporations (venture issuers or non-venture issuers):

• It prevents the selection of the most qualified candidates.
• Informal procedures are in place.
• It is not in the best interest of the corporation or shareholders.
• The size of the corporation and/or its stage of development make it difficult at this time.

Senior management

Figure 4. Distributing corporations that consider the level of representation of designated groups in senior management positions when identifying candidates for appointment

Distributing corporations that considered the level of representation of women on their senior management teams increased by 5 percentage points in 2022 (from 61% in 2021 to 66% in 2022). The average of distributing corporations that considered the level of representation on senior management teams for Indigenous peoples, members of visible minorities and persons with disabilities increased by 4 percentage points in 2022 (from 56% in 2021 to 60% in 2022).

The average percentage of venture issuers that considered a level of representation on senior management teams for all diversity groups is 58%, an increase of 2 percentage points (from 56% in 2021 to 58% in 2022).

The main reasons for not considering the level of representation of designated groups for senior management teams are essentially the same for all distributing corporations (venture issuers or non-venture issuers):

• It prevents the selection of the most qualified candidates.
• Informal procedures are in place.
• The size of the corporation and/or its stage of development makes it difficult.

Targets for representation of designated groups

Board of directors

Figure 5. Distributing corporations with targets for representation of designated groups on boards of directors by a specific date

Distributing corporations that set a target for women on boards of directors increased by 5 percentage points in 2022 (from 18% in 2021 to 23% in 2022).

On average, 5% of non-venture issuers had set targets for any of the designated groups other than women on their board of directors. The average of distributing corporations that set a target on boards of directors for Indigenous peoples, members of visible minorities and persons with disabilities increased by 2 percentage points (from 3% in 2021 to 5% in 2022).

The main reasons for not adopting a target on their boards of directors are essentially the same for all distributing corporations (venture issuers or non-venture issuers):

• Targets prevent the selection of the most qualified candidates.
• There are informal procedures in place.
• The size of the corporation and/or its stage of development make it difficult to adopt targets at this time.

Senior management

Figure 6. Distributing corporations with targets for representation of designated groups in senior management by a specific date

Distributing corporations that set a target for women in senior management increased by 1 percentage point in 2022 (from 7% in 2021 to 8% in 2022).

Of non-venture issuers, 11% had set targets for the representation of women in senior management, a 2-percentage-point increase since 2021.

In 2022, an average of 1% of venture issuers had set targets in senior management for any of the designated groups other than women, whereas an average of 2% of non-venture issuers did so. These findings represent a slight increase for non-venture issuers from the ones observed in 2021.

The main reasons for not adopting a target on their boards of directors are essentially the same for all distributing corporations (venture issuers or non-venture issuers):

• Targets prevent the selection of the most qualified candidates.
• Informal procedures are in place.
• The size of the board and/or senior management make it difficult to adopt a target at this time.

Representation of designated groups among boards of directors and senior management teams

Table 1. Level of representation of designated groups on boards of directors and senior management teams

	Do	Do not	Did not disclose*
Percentage of the 450 distributing corporations that:
Have at least 1 woman on the board of directors	57%	27%	16%
Have at least 1 Indigenous person on the board of directors	3%	69%	28%
Have at least 1 member of a visible minority on the board of directors	23%	51%	26%
Have at least 1 person with disabilities on the board of directors	3%	69%	28%
Have at least 1 woman in senior management	51%	34%	15%
Have at least 1 Indigenous person in senior management	2%	72%	26%
Have at least 1 member of a visible minority in senior management	30%	48%	22%
Have at least 1 person with disabilities in senior management	4%	70%	26%
Percentage of the 173 venture issuers that:
Have at least 1 woman on the board of directors	32%	45%	23%
Have at least 1 Indigenous person on the board of directors	3%	65%	32%
Have at least 1 member of a visible minority on the board of directors	10%	59%	31%
Have at least 1 person with disabilities on the board of directors	2%	66%	32%
Have at least 1 woman in senior management	33%	47%	20%
Have at least 1 Indigenous person in senior management	0%	69%	31%
Have at least 1 member of a visible minority in senior management	14%	58%	28%
Have at least 1 person with disabilities in senior management	0%	70%	30%
Percentage of the 277 non-venture issuers that:
Have at least 1 woman on the board of directors	72%	16%	12%
Have at least 1 Indigenous person on the board of directors	3%	71%	26%
Have at least 1 member of a visible minority on the board of directors	32%	46%	22%
Have at least 1 person with disabilities on the board of directors	3%	71%	26%
Have at least 1 woman in senior management	63%	27%	10%
Have at least 1 Indigenous person in senior management	3%	74%	23%
Have at least 1 member of a visible minority in senior management	40%	42%	18%
Have at least 1 person with disabilities in senior management	6%	70%	24%
* “Did not disclose” includes corporations that did not disclose information on a requirement as well as those that included information not considered according to the methodology of this report.

Results from 2022 show modest increases in the representation of designated groups among boards of directors and senior management teams of distributing corporations.

For boards of directors, the share of distributing corporations that have at least one:

• woman increased by 2 percentage points (from 55% in 2021 to 57% in 2022);
• Indigenous person has slightly increased (from 2% in 2021 to 3% in 2022);
• member of a visible minority remained the same from 2021 to 2022 at 23%;
• person with disabilities has slightly increased (from 2% in 2021 to 3% in 2022).

For senior management teams, the share of distributing corporations that have at least one:

• woman remained the same from 2021 to 2022 at 51%;
• Indigenous person remained the same from 2021 to 2022 at 2%;
• member of a visible minority increased by about 2 percentage points (from 28% in 2021 to 30% in 2022);
• person with disabilities increased by about 1 percentage point (from 3% in 2021 to 4% in 2022).

Composition of distributing corporations’ boards of directors and senior management teams

In addition to looking at the broad level of representation among distributing corporations, we reviewed the composition of boards and senior management teams to see the proportion of leadership positions held by members of the 4 designated groups.

The following percentages are based on a total of 2,892 directors for distributing corporations (828 for venture issuers and 2,064 for non-venture issuers) in 2022 compared to 2,603 directors for distributing corporations (719 for venture issuers and 1,884 for non-venture issuers) in 2021.

For senior management positions, the total number of individuals is 2,917 for distributing corporations (346 for venture issuers and 2,571 for non-venture issuers) in 2022 compared to 2,420 for distributing corporations (290 for venture issuers and 2,130 for non-venture issuers) in 2021.

Seats held by designated groups on boards of directors

Table 2. Percentage of seats held by designated groups on boards of directors

Designated groups	2022	2021
Women (all distributing corporations)	19%	20%
Women Venture issuers	9%	10%
Women Non-venture issuers	23%	23%
Indigenous peoples (all distributing corporations)	0.6%	0.4%
Indigenous peoples Venture issuers	0.7%	0.4%
Indigenous peoples Non-venture issuers	0.5%	0.4%
Visible minorities (all distributing corporations)	6%	7%
Visible minorities Venture issuers	4%	6%
Visible minorities Non-venture issuers	7%	7%
Persons with disabilities (all distributing corporations)	0.4%	0.4%
Persons with disabilities Venture issuers	0.5%	0.4%
Persons with disabilities Non-venture issuers	0.3%	0.4%

Positions held by designated groups on senior management teams

Table 3: Percentage of positions held by designated groups on senior management teams

Designated groups	2022	2021
Women (all distributing corporations)	27%	25%
Women Venture issuers	25%	20%
Women Non-venture issuers	27%	26%
Indigenous peoples (all distributing corporations)	0.4%	0.4%
Indigenous peoples Venture issuers	0%	0%
Indigenous peoples Non-venture issuers	0.4%	0.4%
Visible minorities (all distributing corporations)	12%	9%
Visible minorities Venture issuers	11%	11%
Visible minorities Non-venture issuers	12%	8%
Persons with disabilities (all distributing corporations)	1.2%	0.7%
Persons with disabilities Venture issuers	0%	0%
Persons with disabilities Non-venture issuers	1.3%	0.7%

Conclusion

This is the third year that distributing corporations, including venture issuers, were required to disclose diversity information for all 4 designated groups (women, Indigenous peoples, members of visible minorities and persons with disabilities) to their shareholders and Corporations Canada.

The diversity information we received and compiled in 2022 was measured against the baseline established in 2021.

This year’s findings show slight progress in the levels of diversity on senior management. Among boards of directors, while there has been some improvement on representation, the percentage of overall board seats filled by women and members of visible minorities decreased slightly. The findings also clearly show a disparity in the representation of designated groups on boards of directors and among senior management and the population available to work.^{Footnote 5} Of all board seats, 19% are held by women, 0.6% by Indigenous peoples, 6% by members of visible minorities and 0.4% by persons with disabilities. Women hold 27% of all senior management positions, Indigenous peoples hold 0.4%, visible minorities hold 12% and persons with disabilities hold 1.2%.

Although progress was made in some areas against the 2021 baseline, it still does not measure up to the diversity of the Canadian population available to work.

Related information

Diversity of boards of directors and senior management disclosure requirements

Diversity of Boards of Directors and Senior Management of Federal Distributing Corporations – 2021 annual report

Diversity of Boards of Directors and Senior Management of Federal Distributing Corporations – 2020 annual report