A Snapshot of Board and Executive Diversity in the Canadian Mid-Market

The topic of diversity is ever evolving and at the board and executive levels, can involve both social (e.g. gender, race/ethnicity, age diversity, as well as non-visible diversity characteristics such as disability, sexual orientation, religion) and professional (e.g. background, skillset diversity) aspects. Having a more diverse board or executive team can encourage more collaboration, different perspectives, and discussions that ultimately improve the quality and objectivity of the decision-making process. It also fosters innovation, creativity and a better understanding of stakeholder sights.

Compensation Governance Partners aims to provide you with up-to-date executive compensation information and trends, via our proprietary compensation database (composed of fully evaluated and sized executive roles from both privately-held and publicly-traded organizations). In this article, we revisit the diversity practices of the same approximate 115 publicly-traded mid-market Canadian organizations listed on the TSX from our 2019 article, less any organizations that have since delisted or merged / were acquired for the 2022 proxy season. 

Key Highlights:

• 86 percent of organizations have a formal board diversity policy, up from 78 percent in 2019

• Women account for 11 percent of board Chair positions, up from 5 percent in 2019

• 10 percent of board directors are BIPOC, while only 2 percent of directors self-identify as Indigenous

• Persons with disabilities represent 1 percent of both board directors and members of senior management

• The average age of Canadian directors is 62 years old, similar to findings from 2019

• 32 percent of organizations have at least 1 female Named Executive Officer, a decrease from 44 percent in 2019

  
  

Diversity in the Boardroom

While there are currently no formal requirements for Canadian organizations to enforce diversity practices, beginning in late 2014, amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices implemented a "comply or explain" rule for non-venture issuers to make annual disclosures with respect to women in leadership roles. More recently, major proxy advisory firms including Institutional Shareholder Services (ISS) and Glass Lewis have released additional guidelines relating to gender diversity, effective for 2022. Under these new guidelines, both ISS and Glass Lewis recommend voting against the chair of the nominating committee if there is not sufficient female representation (at least 30 percent for ISS and at least 2 directors for boards with more than 7 directors for Glass Lewis) or if there is not a board diversity policy that includes a 30 percent target to be achieved in a reasonable timeframe. Nasdaq has also become the first regulator to mandate diversity beyond gender on public company boards. These requirements, which extend to any Canadian issuers on the exchange, include having at least 2 diverse directors, at least 1 of whom is female and in the case of American issuers, at least 1 of whom is from an underrepresented minority. Issuers that fail to comply with these requirements must also publicly disclose their reasons.

In addition, the Government of Canada launched the 50 – 30 Challenge in December 2020, which challenges Canadian organizations to achieve gender parity (50% women and/or non-binary people) and significant representation (30%) of other under-represented groups, including racialized persons, Indigenous people, people living with disabilities and members of the LGBTQ2+ community, on corporate boards and in senior management positions. Other campaigns and initiatives also call for the representation of women on boards and in executive positions; the 30% Club and the Catalyst Accord 2022 both aim to increase the average percentage of women on boards and in executive positions in Canada and worldwide to 30%, and the CEO Action for Diversity & Inclusion represents the largest CEO-driven business commitment to advance diversity and inclusion within the workplace.

Board Diversity Policy

86 percent of companies in the Canadian mid-market have a publicly-disclosed, formal board diversity policy, up from 78 percent in 2019. A board diversity policy provides a framework to promote inclusion and diversity at the board level. The policy usually includes statements about board composition, experience, backgrounds, and perspectives.

As of January 1, 2020, following the amendments to the Canadian Business Corporations Act (CBCA), publicly-traded organizations are now legally required to annually report on the diversity information of their boards and senior management teams, including the representation of the following 4 designated groups as defined in the Employment Equity Act:

• Women

• Indigenous people (First Nations, Inuit and Métis)

• Persons with disabilities

• Members of visible minorities

  
  

The CBCA defines a corporation’s senior management team as any of the following:

• Chair or Vice-Chair of the board of directors

• President of the corporation

• Chief Executive Officer and Chief Financial Officer

• Vice-President in charge of a principal business unit, division or function, including sales, finance or production

• Anyone who performs a policy-making function within the corporation

  
  

Other disclosure requirements include information about policies and targets for the representation of the designated diversity groups, or explanations regarding the lack of policies and/or targets. With this amendment, it is not surprising that an increasing number of companies have implemented a formal board diversity policy.

Of the organizations with formal board diversity policies, the most commonly targeted characteristic continues to be around the appointment of women, at around a third of the sample. Around 5 percent of organizations have targets relating to the representation of visible minorities or members of the LGBTQ2+ community and no organizations have targets relating to the representation of people with disabilities. Other targets are broader in nature and may encompass multiple diversity characteristics.

On average, the diversity target for the appointment of women on boards is 32 percent, meaning that Canadian boards generally aim to have female representation for a third of all board members. This has increased from 29 percent in 2019 and aligns with the targets set by the 30% Club and the Catalyst Accord 2022. Of these organizations, 64 percent have either met or exceeded their diversity target(s).

All TSX mid-cap issuers in this sample have at least 1 female board member, up from 98 percent in 2019. The vast majority of organizations have at least 2 female board members and almost two-thirds have 3 or more female board members. Similar to 2019 trends, the numbers begin to drop quickly afterwards, with almost no issuers having more than 6 female directors.

On average, female directors represent around a third of a typical boardroom, which aligns with the average board diversity target of 32 percent. Women also occupy 11 percent of board chair seats in the Canadian mid-market. We notice improvements in both these figures from 2019, signaling that organizations are committing to improvements in gender parity.

These figures vary slightly from privately-held companies, where female directors only represent around a quarter of board directors, based on a sample of 103 privately-held organizations from Compensation Governance Partner’s 2022 Private Company Director Compensation (PCDC) Survey.

Different Facets of Diversity

Ethnic diversity

Beyond gender, diversity spans across other areas including the racial and ethnic composition of board members. Based on our research, currently 10 percent of all directors at Canadian mid-cap organizations are BIPOC (Black, Indigenous, People of Color), with white males holding 61 percent of all board seats. These figures are similar to our findings from 2019, suggesting that not much movement has occurred in the past few years. Only 2 percent of directors self-identify as Indigenous. Similar to 2019, of the organizations who disclose the residency of their directors, 73 percent of Canadian boards have some form of non-Canadian representation. The minimum number of seats occupied by non-Canadians on a board remains at 0, while the maximum number of seats is 10, up from 7 in 2019.

Persons with Disabilities

As part of the amendments to the CBCA, organizations must now disclose the representation of persons with disabilities on their board and senior management team. On average, only 1 percent of both board members and members of senior management are represented by individuals who self-identify as a person with disabilities (including invisible and episodic disabilities).

LGBTQ2+ Diversity

1 organization within this sample disclosed the percentage of its senior management team that identifies as LGBTQ2+. While this is not a designated group under the CBCA, we will continue to monitor for improved disclosure rates in the future. 

Age Diversity

Age diversity is another facet that organizations tend to underemphasize. Of the organizations who disclose the age of their directors, the average Canadian director is 62 years old, while the average youngest and average oldest director is 49 years old and 72 years old, respectively. This is consistent with our findings from 2019.

Age diversity at the board level is important for several reasons, including contributing diverse views and experiences, provoking thought innovation, introducing new knowledge and resources, and adapting to an evolving business landscape.

Term Limits

Around 37 percent of TSX mid-cap issuers have a term limit in place for directors, of which 35 percent have a term limit by age, 28 percent have a term limit by years of service and 38 percent consider both age and years of service (i.e. the earlier of either term limit). The most prevalent term limit is by age at 75 years old, while the most prevalent term limit by years of service is 15 years, followed by 12 years and 10 years. These term limits align with our findings from 2019. Most board members do not appear to reach the term limit as the average tenure is 7 years long.

Women on executive teams

When it comes to Named Executive Officers, only 15 percent in the Canadian mid-market are female.

A Named Executive Officer (“NEO”) refers to the Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated executives of the organization. Usually, these are the top five highest paid executives of an organization. Publicly-traded companies must disclose the compensation of their NEOs in the annual proxy circular.

32 percent of issuers in this sample of the TSX mid-cap have at least 1 female NEO, meaning that around two-thirds of organizations do not have any women in their top five executive ranks. In 2019, 44 percent of organizations had at least 1 female NEO, showing a decrease of female representation since then. Currently, no organization has more than 2 female named executives. Consistent with 2019, only 5 percent of organizations have a female CEO at the head of the company.

Similar to 2019, financial services organizations within the Canadian mid-market appear to have the most female representation at the named executive level, with 67 percent of financial services organizations having at least 1 female NEO. Real estate organizations have a considerable increase in female NEOs since 2019, from 47 percent to 63 percent. On the contrary, consumer cyclicals have seen a significant decrease in female representation at the named executive level, from 67 percent in 2019 to 43 percent this year. Basic materials and energy, both of which have been historically male-dominated industries, have increased their representation of females since 2019, from 35 percent to 54 percent and from 38 percent to 44 percent, respectively.

Beyond the executive ranks, women in leadership roles account on average for about a third of all senior management positions in the Canadian mid-market. While improvements have been made since 2019, these numbers continue to paint a narrative that most Canadian management teams are still predominantly male. 

What does this mean for Canadian Boards and executive teams?

What does this mean for Canadian boards and executive teams? Many organizations are continuing to implement practices that promote diversity, while considering both its social and professional elements. Although there has been steady improvement in diversity and inclusion, there is still much work to be done. It also remains to be seen how changes in the labour market due to the pandemic may affect these figures. With the new CBCA diversity disclosure requirements, year-over-year analyses will be needed to continually monitor and assess whether corporations are meeting their diversity targets. Now more than ever, it is important that organizations put further thought and practice into all facets of diversity in the Boardroom and at the executive level.