A Snapshot of Diversity in the Canadian Mid-Market

What is diversity at the board and executive level? Diversity can involve both social (e.g. gender, race/ethnicity, age diversity) and professional (e.g. background, skillset diversity) aspects. Having a more diverse board or executive team can encourage more collaborative conversations and spark discussions involving different perspectives.

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 named executives from publicly-traded organizations). In this article, we will cover diversity practices from the 2019 proxy season from approximately 115 publicly-traded mid-market Canadian organizations listed on the TSX, including the TSX 100-200 companies.

Female presence in the boardroom

Currently, Canada does not have any formal requirements to enforce diversity practices. By comparison, a number of European countries including Norway, Spain, France, and Iceland all have laws requiring that women comprise at least 40 percent of boards at publicly listed companies (source: Harvard Business Review: When and Why Diversity Improves Your Board’s Performance).

Although there are no regulatory requirements in Canada for female representation on boards, in December 2014, amendments were made to National Instrument 58-101 Disclosure of Corporate Governance Practices, which implemented a “comply or explain” rule for non-venture issuers to make annual disclosures with respect to women in leadership roles. Starting in 2015, the Canadian Securities Administrator has also conducted a staff review of gender diversity disclosures made by public companies under this amendment. In general, the consensus of the staff review is that female board representation remains low.

78 percent of companies in the Canadian mid-market have a publicly-disclosed, formal board diversity policy. 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.

At the federal level, given the amendments to the Canadian Business Corporations Act (CBCA) coming into effect on January 1, 2020, it is not surprising that 78 percent of companies have already disclosed and implemented a formal board diversity policy. The amendments will legally require that publicly-traded corporations annually disclose their term limits and diversity policies. In addition, corporations must indicate representation of “designated groups” at both the director and senior management level.

On average, the board diversity target for the appointment of women to boards is 29 percent, meaning that Canadian boards generally aim to have female representation for almost a third of all board members. In practice though, only 42 percent of organizations met or exceeded their diversity target.

98 percent of TSX mid-cap issuers have at least 1 female board member; however, as shown in figure 2, this statistic drops quickly as the number of female board members increases. For example, 68 percent of issuers have 2 or more female directors, but only 35 percent have 3 or more female directors. The numbers taper out shortly thereafter, as no issuers have more than 6 female directors.

On average, female directors represent around a quarter of a typical Canadian boardroom, lagging behind the average board diversity target of 29 percent. Women also only occupy 5 percent of board chair seats in the Canadian mid-market. Based on these numbers, gender parity is still something that most organizations strive to achieve.

A broader view on board diversity

Ethnic diversity

When considering diversity practices, it is important to look past just gender diversity. Diversity spans across other areas including the racial and ethnic composition of board members. Based on our research, currently 94 percent of all directors at Canadian mid-cap organizations are Caucasian/White, with Caucasian/White males holding 62 percent of all board seats. 71 percent of Canadian boards have some form of non-Canadian representation. The number of seats occupied by non-Canadians ranges between 1 to 7.

Term limits & age diversity

Age diversity is another facet that organizations tend to overlook; having an age diverse board can lend multiple perspectives to discussions and decision-making. Almost half of TSX mid-cap issuers have a term limit in place for directors, which can help encourage fresh and new ideas into the boardroom. 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 closely by 12 years and 10 years. Most board members do not appear to reach the term limit as the average tenure is 7 years long. The average Canadian director is 62 years old, while the average youngest and average oldest director is 48 years old and 72 years old, respectively.

Women on executive teams

When it comes to Named Executive Officers, only 11 percent in the Canadian mid-market are female.

A Named Executive Officer 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 5 paid executives of an organization. Publicly-traded companies must disclose the compensation of their Named Executive Officers in the annual proxy circular.

44 percent of issuers in the TSX mid-cap have at least 1 female Named Executive Officer, meaning that more than half of organizations don’t have any women in their top 5 executive ranks. Currently, no organization has more than 2 female named executives. Only 5 percent of organizations have a female CEO.

Perhaps surprisingly, within the Canadian mid-market, financial services organizations appear to have the most female representation at the named executive level, with 78 percent of financial services organizations having at least 1 female Named Executive Officer. Consumer cyclical organizations also have a moderate number of women in named executive positions, with 67 percent having at least 1 female Named Executive Officer. Basic materials and energy, both of which have been historically male-dominated industries, have a lower amount of female Named Executive Officers, at 35 percent and 38 percent, respectively.

These numbers show some improvement when we move down the executive ranks past the named executives. On average, women in leadership roles account for a third of all senior management positions in the Canadian mid-market. That said, these numbers paint a narrative that most management teams in the Canadian mid-market are predominantly male. 

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. Though there has been steady improvement in diversity and inclusion, there’s still a lot of work to be done. The new CBCA diversity disclosure requirements are a step in the right direction, but additional monitoring will be needed to assess whether corporations are meeting their diversity targets. Diversity in the boardroom and at the executive level continue to be a hot issue for organizations around the world, and it won’t be cooling down any time soon.