Andrew Burke, Colleen Keyes and David Slipp

Starting January 1, 2020 “Distributing Corporations” under the Canada Business Corporations Act (“CBCA”) will be subject to new disclosure requirements relating to the diversity of directors and senior management.

Who will be affected by these changes?

This new legislation will only affect entities existing under the CBCA that are also “Distributing Corporations”. A Distributing Corporation is defined by the CBCA Regulations to include:

• any “reporting issuer” under provincial securities laws;
• any corporation that is listed and posted for trading on a stock exchange inside or outside Canada;
• any corporation that has filed a prospectus or registration statement under provincial legislation or under the laws of a jurisdiction outside Canada; and
• their successor corporations.

What are the new disclosure requirements?

Distributing Corporations will be required to disclose information related to the diversity characteristics within their board of directors and senior management. They will also have to describe any policies related to the identification and nomination of diverse candidates to these positions. The disclosure will have to be made in relation to the following four groups:

• women;
• aboriginal peoples;
• persons with a long-term or recurring physical, mental, sensory, psychiatric, or learning impairment; and
• persons, other than aboriginal peoples who are non-caucasian in race.

The information will have to address the following points:

• whether the corporation has adopted term limits or similar mechanisms for board renewal – these limits or mechanisms must be described or the corporation must explain why it does not have them;
• whether the corporation has adopted a written policy relating to the identification and nomination of diverse candidates for directorships, or why it has not adopted such a policy;
• whether the board considers the level of representation of diversity groups when identifying and nominating candidates for the board or appointing members of senior management – the corporation must describe how it is considered or why it is not;
• whether the corporation has adopted a target number or percentage for any/each of the four designated groups;
• the number and proportion of members for each designated group who hold positions on the board of directors expressed as a percentage; and
• the number and proportion of members for each designated group who hold positions as senior management of the corporation and all major subsidiaries expressed as a percentage.

What qualifies as a “Member of Senior Management” or a “Major Subsidiary”?

Members of senior management are defined by regulation to include:

• the chair and vice-chair of the board of directors;
• the president of the corporation;
• the chief executive officer and the chief financial officer;
• the vice-president in charge of a principal business unit, division, or function; and
• an individual who performs a policy-making function within the corporation.

A major subsidiary of the corporation is a subsidiary that has assets or revenues that are 30 percent or more of the consolidated assets or revenues of the Distributing Corporation.

Are there any exemptions to the new rules?

The information described above must be provided with any notice or a proxy circular package required for the Distributing Corporation’s annual meeting unless a particular shareholder informs the corporation in writing that they do not want to receive the information.  The information must also be sent to the Director under the CBCA.

How does a corporation collect the information in order to disclose it?

Although not explicitly mandated, Distributing Corporations will have to solicit their directors and senior management to self-identify any designated diversity characteristics in order to comply with these new requirements. The time and resources required to collect and analyze this information will need to be factored into the corporation’s yearly disclosure planning and AGM preparation.

What if a corporation has no such policies or has a lack of diversity?

The “comply or explain” structure of the new requirements does not mandate that Distributing Corporations actually make any changes to their current practices. It is aimed at inspiring corporations to change by highlighting how their traditional approach may not be capturing the full range of potential candidates.

How is this different than diversity disclosure requirements under provincial securities laws?

Although the nature of the information required to be disclosed is substantially the same as that required by the corporate governance disclosure rules under provincial securities laws applicable to senior listed public corporations in Canada, the new CBCA requirements differ in two material respects.

First, the new CBCA diversity disclosure requirements apply to a number of corporations that are not required to comply with the existing diversity disclosure requirements, which only apply to corporations listed on the TSX in Canada or certain senior exchanges outside Canada. In particular, corporations that are venture issuers because they are listed on junior exchanges such as the TSX Venture Exchange, CSE or are unlisted will be subject to the new CBCA requirements.

Second, while the existing diversity disclosure requirements deal only with gender, the new CBCA requirements will require the same information for each of the four groups described above.

What are the consequences of not disclosing?

Distributing Corporations who fail to comply with these new rules can be found guilty of an offence and its directors can be personally fined up to $5,000 or liable for up to six months imprisonment.

This update is intended for general information only. If you have questions about the above, please contact a member of our Securities Group.