Board and Executive Diversity in the Canadian Mid-Market

Every year, the topic of diversity continues to gain prominence at both the board and executive levels. Diversity encompasses a wide range of dimensions, including social aspects such as gender, race/ethnicity, age, and non-visible diversity characteristics such as disability, sexual orientation, religion, as well as professional factors like background and skillset.

In this article, we revisit the diversity practices of the same approximate 193 publicly-traded mid-market Canadian organizations listed on the TSX from our 2022 article, less any organizations that have since delisted or merged / were acquired for the 2024 proxy season.

Key Highlights

• 84 percent of organizations have a formal board diversity policy

• Women account for 11 percent of board Chair positions, consistent with 2022 figures

• The average age of Canadian directors is 61 years old, similar to findings from 2022

• 55 percent of organizations have at least 1 female Named Executive Officer, a 23 percent increase from 2022

Diversity in the Boardroom

While there are currently no formal requirements for Canadian organizations to enforce diversity practices, significant steps have been taken to encourage greater diversity in leadership roles. 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 issued updated guidelines relating to gender diversity, effective from 2022. Under these new guidelines, both ISS and Glass Lewis recommend voting against the chair of the nominating committee if the company does not have sufficient female representation on the board – at least 30 percent for ISS, and since 2023, at least 30 percent for Glass Lewis. They also recommend voting against the chair if there is not a board diversity policy that includes a 30 percent target to be achieved within a reasonable timeframe. (Nasdaq in the USA has also made significant strides, becoming the first regulator to mandate diversity beyond gender on public company boards.) These requirements, which apply to any Canadian issuers on the exchange, mandate that boards must have 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.

Female Board Diversity

Currently, 84 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, with outlining statements about board composition, experience, backgrounds, and perspectives. The Canada Business Corporations Act (CBCA) requires publicly-traded companies to disclose their information regarding the representation of women, Indigenous peoples (First Nations, Inuit, and Métis), persons with disabilities, and members of visible minorities.

The typical target for the representation of women on boards is 32 percent, indicating that Canadian boards aim for female members to comprise approximately a third of all board members. Of these organizations, 91 percent have either met or exceeded their target(s), a 27 percent increase from 2022.

As depicted in figure 2, the vast majority of Canadian mid-market organizations (98%) have at least 1 female board member. However, this represents a 2 percent decrease from the organizations that reported a female board member in 2022. Currently, 92 percent of companies have 2 or more female directors and two-thirds have 3 or more. Following the 2019 and 2022 trends, the number of female board members drops significantly beyond this point, with only 1 firm having 6 or more female directors.

On average, a third of the boardrooms will consist of female directors, which is in alignment with the 32 percent board diversity target. In addition, only 11 percent of board chairs are women, which is stagnant with the 2022 results. According to these statistics, Canadian companies still have room for improvement in achieving gender parity at the board level.

Term Limits

Approximately 32 percent of TSX mid-cap issuers have a term limit for directors. Among those with a term limit, 22 percent have a term limit by age, 34 percent by years of service, and 44 percent consider both age and years of service. The most common term limit by age is at 75 years old and the most prevalent term limit by years of service is 15 years. However, as the average tenure of directors is at 7 years, most do not appear to reach the term limit.

Age Diversity

Age diversity provides unique views and experiences, cultivating innovative thinking in a time of rapidly changing business landscapes. The average age of boards from organizations that disclose this information is 61 years old. The youngest average board is 50 years old while the oldest average board is 71. This trend is consistent with our findings from 2019 and 2022. The actual age range of directors is more varied, with several directors observed in their mid-to-late thirties and several others in their late seventies and early eighties.

Women on Executive Teams

15 percent of Named Executive Officers (NEOs) in the Canadian mid-market are women, which has remained consistent with 2022 results.

A 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.

The majority of Canadian mid-market organizations have at least 1 female NEO (55 percent), marking a 23 percent increase from 2022. While this is a major improvement, only 29 out of the 193 companies in this sample have more than 2 female NEOs. Consistent with 2022, only 5 percent of issuers in this sample of the TSX mid-cap have a female CEO.

Breaking this up by sector, we see that utilities organizations lead in female representation at the NEO level, with 88 percent having at least 1 female NEO. Following closely, the healthcare sector is at 86 percent. More than half of real estate, consumer discretionary, energy, and technology organizations in the Canadian mid-market all have 1 or more female NEOs at 75, 63, 62, and 57 percent respectively. On the contrary, the following sectors have less than half of organizations with female representation: industrials at 48 percent, materials at 46 percent, consumer staples at 33 percent, and finance at 32 percent. The media sector had the least representation of women with only 25 percent of companies having a female NEO.

What does this mean for Canadian boards and executive teams?

With the help of the CBCA disclosure requirements and the societal shift of placing further importance on having diverse representation, we are seeing gradual improvements. However, progress has been slow and there remains considerable room for further advancement in this area. The increase in board directors and executives with varied backgrounds at the senior level can have significant positive impacts on organizations as a whole. As Canadian companies continue to implement these changes, they are likely to see the long-term benefits of their efforts.