Remarks to The Standing Senate Committee on Banking, Trade and Commerce

Remarks to The Standing Senate Committee on Banking, Trade and Commerce (BANC]
Matthew Fortier,  Vice-President, Policy
Institute of Corporate Directors

 

December 7, 2017                                                                                                                      

Thank you Mr Chair,
Merci M. le président.
Et merci au membres du comite pour m’avoir invité aujourd’hui
 
The Institute of Corporate Directors is Canada’s association for boards and directors from the for-profit, not-for-profit and Crown sectors.We represent over 12,000 organizational and societal leaders who play a significant role in determining the strategies for many of our country’s most important institutions.
Canada’s corporate governance regime is a principles-based one. Our public issuers are subject to a fulsome set of rules through harmonized provincial securities and stock exchange regulations.
 
This is a system that serves us well.
 
At the end of last year I ended my term as the chair of the Global Policy Committee of the Global Network of Director Institutes, which includes 19 jurisdictions – from the US and the UK to Pakistan and Malaysia, and others.
 
I can tell you after working with and travelling to many of these countries that Canada’s stable and ethical governance is a competitive advantage at a time when countries are looking for ways to attract investment and talent. In the interests of time, I will limit my remarks to two items in the legislation: majority voting and diversity disclosure.
 
In the ICD’s 2014 comment letter to Industry Canada, we argued that updates to the CBCA should not interfere with the mandates or decisions of provincial regulators or the TSX or add to the burden of companies by overlaying duplicative requirements.
 
We also noted that the TSX had already mandated majority voting policies.
 
The TSX’s approach provides real consequences for directors who fail to receive a majority but provides boards with an appropriate safeguards through the “exceptional circumstances” exception to deal with the risk of “failed elections”.
 
It is important to note that the “exceptional circumstances” exception in the TSX rules was used only once over the most recent year.
 
As well as “failed elections”, there are other possible unintended consequences of majority voting.
 
A discussion paper released earlier this year by my colleagues from Hansell LLP, flagged a number of these, including the effectiveness of boards when directors fail to receive a majority; the inability for shareholders to have a say on replacement directors or, most concerningly, opening the door to dissident shareholders using this change in legislation to target one or more directors in a self-interested campaign.
 
To mitigate against these possibilities, we would urge the government to include a reasonable time frame for boards to address the consequences of a director being voted down by shareholders. This would allow time for the board to re-constitute itself in accordance with the corporate strategy it has approved.
 
The TSX majority voting regime provides boards 90 days to accept a director’s resignation. The ICD believes this would also be a reasonable timeframe to introduce into the CBCA. We hope the government considers this proposal and we would welcome the opportunity to work with them.
 
I would like to now spend a couple of minutes discussing diversity disclosure.
 
The ICD believes that the more Canada views diversity as a driver of innovation, the better our boards, companies and economies will perform.
 
Unfortunately, recent results from the OSC show Canada is a good distance from where we need to be to leverage our diversity in a way that helps drive innovation and competitiveness.
 
While disappointing, this isn’t necessarily surprising. Our public markets are fuelled by small and mid-cap companies that are often governed by directors who are just trying to keep the company going. While it should be, diversity is not always top of mind.
 
Our job is not only to convince Canada’s public companies that diversity is good for their business, but also to help them get there.
This time last year, the ICD, working with the law firm, Oslers, launched a Board Gender Diversity Template that provides all companies  access to a templated policy that allows them to choose how they will diversify their boards on a timeline that makes sense for their business. I believe the Clerk has provided you with copies of a draft template.
 
And last month, with our friends at Catalyst Canada, CCGG, the 30% Club, Women in Capital Markets, the Business Council of Canada and the Clarkson Centre, we founded the Coalition for Gender and Good Governance to help provide Canadian companies tangible ways to improve gender diversity. I believe the Clerk has also circulated to you the Director’s Playbook, which is the first publication by this coalition.
 
But, of course, diversity goes beyond gender. This has long been the ICD’s position and is precisely what the diversity provisions within this bill aim at as well.
 
In a survey of ICD members released late last month, the top two societal concerns discussed by boards were the inclusion of new Canadians in the workforce and increasing the involvement of Indigenous Canadians in the workforce.
 
This is encouraging but, as Senators have heard, a recent report from the Diversity Institute shows that visible minorities account for just over 3 per cent of corporate boards seats.
 
Much more needs to be done.
 
So, for these reasons, we support the government’s broadened definition of diversity. Nevertheless, we should be mindful of the progress we are making regarding gender diversity – even if it is slower than most of us would like. There is momentum building and, while all diversity is important, it is untenable that over half of the country’s population is so underrepresented in corporate leadership positions.
 
The ICD fully intends to continue building momentum towards greater gender diversity on Canada’s boards.
 
Thank you very much and I am happy to take your questions.