Regulations Amending the Canada Business Corporations Regulations, 2001: SOR/2019-258
Canada Gazette, Part II, Volume 153, Number 14
Registration
SOR/2019-258 June 25, 2019
CANADA BUSINESS CORPORATIONS ACT
P.C. 2019-928 June 22, 2019
Her Excellency the Governor General in Council, on the recommendation of the Minister of Industry, pursuant to subsection 261(1) footnote a of the Canada Business Corporations Act footnote b, makes the annexed Regulations Amending the Canada Business Corporations Regulations, 2001.
Regulations Amending the Canada Business Corporations Regulations, 2001
Amendments
1 The Canada Business Corporations Regulations, 2001 footnote 1 are amended by adding the following after Part 8.1
PART 8.2
Disclosure Relating to Diversity
72.2 (1) The following definitions apply in this Part.
designated groups has the same meaning as in section 3 of the Employment Equity Act. (groupes désignés)
major subsidiary means, in respect of a distributing corporation, a subsidiary that
- (a) has assets, as included in the distributing corporation’s most recent annual audited or interim balance sheet or most recent statement of financial position, that are 30 percent or more of the consolidated assets of the distributing corporation reported on that balance sheet or statement of financial position, as the case may be; or
- (b) has revenue, as included in the distributing corporation’s most recent annual audited or interim income statement or most recent statement of comprehensive income, that is 30 percent or more of the consolidated revenue of the distributing company reported on that statement. (filiale importante)
(2) For the purposes of subsection 172.1(1) of the Act, a distributing corporation is a prescribed corporation.
(3) For the purpose of subsection 172.1(1) of the Act, members of senior management means, in respect of a distributing corporation, the following individuals:
- (a) the chair and vice-chair of the board of directors;
- (b) the president of the corporation;
- (c) the chief executive officer and chief financial officer;
- (d) the vice-president in charge of a principal business unit, division or function, including sales, finance or production; and
- (e) an individual who performs a policy-making function in respect of the corporation.
(4) For the purpose of subsection 172.1(1) of the Act, the following information is prescribed:
- (a) indication of whether or not the distributing corporation has adopted term limits for the directors on its board or other mechanisms of board renewal and, as the case may be, a description of those term limits or mechanisms or the reasons why it has not adopted them;
- (b) indication of whether or not the distributing corporation has adopted a written policy relating to the identification and nomination of members of designated groups for directors and, if it has not adopted a written policy, the reasons why it has not adopted the policy;
- (c) if the distributing corporation has adopted the written policy referred to in paragraph (b),
- (i) a short summary of the policy’s objectives and key provisions,
- (ii) a description of the measures taken to ensure that the policy is effectively implemented,
- (iii) a description of the annual and cumulative progress by the distributing corporation in achieving the objectives of the policy, and
- (iv) whether or not the board of directors or its nominating committee measures the effectiveness of the policy and, if so, a description of how it is measured;
- (d) whether or not the board of directors or its nominating committee considers the level of the representation of designated groups on the board in identifying and nominating candidates for election or re-election to the board and, as the case may be, how that level is considered or the reasons why it is not considered;
- (e) whether or not the distributing corporation considers the level of representation of designated groups when appointing members of senior management and, as the case may be, how that level is considered or the reasons why it is not considered;
- (f) whether or not the distributing corporation has, for each group referred to in the definition designated groups, adopted a target number or percentage, or a range of target numbers or percentages, for members of the group to hold positions on the board of directors by a specific date and
- (i) for each group for which a target has been adopted, the target and the annual and cumulative progress of the corporation in achieving that target, and
- (ii) for each group for which a target has not been adopted, the reasons why the corporation has not adopted that target;
- (g) whether or not the distributing corporation has, for each group referred to in the definition designated groups, adopted a target number or percentage, or a range of target numbers or percentages, for members of the group to be members of senior management by a specific date and,
- (i) for each group for which a target has been adopted, the target and the annual and cumulative progress of the corporation in achieving that target, and
- (ii) for each group for which a target has not been adopted, the reasons why the corporation has not adopted that target;
- (h) for each group referred to in the definition designated groups, the number and proportion, expressed as a percentage, of members of each group who hold positions on the board of directors; and
- (i) for each group referred to in the definition designated groups, the number and proportion, expressed as a percentage, of members of each group who are members of senior management of the distributing corporation, including all of its major subsidiaries.
Coming into Force
2 These Regulations come into force on the day on which section 24 of An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act, chapter 8 of the Statutes of Canada, 2018, comes into force, but if they are registered after that day, they come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues
Diversity on boards of directors and among senior management continues to be an issue within Canada as well as in other countries. Women make up 48% of the workforce, but hold an estimated 14% of all Canadian board seats and approximately 22% of the board seats in Financial Post 500 companies. In addition to women, other populations are also under-represented in corporate leadership roles, including Aboriginal peoples, people with disabilities, and members of visible minorities.
Increasing board diversity in corporate leadership roles continues to be a key focus, but gaps persist in senior management as well. While the focus has primarily been on gender, the issue of diversity is much broader. At minimum, it includes women, Aboriginal peoples, people with disabilities, and members of visible minorities. Under-representation of different segments of our population is not only a question of fairness, but it may also have an impact on board quality and corporate performance. Viewpoints from a variety of perspectives can lead to innovative thinking and better performance.
Background
On May 1, 2018, Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act, received royal assent. The federal corporate statutes play a key role in ensuring that investors have confidence in the way corporations are governed. This confidence contributes to economic growth that benefits all Canadians. The Bill introduced amendments to increase shareholder democracy and participation, support the push for increased diversity on corporate boards and in senior management, improve corporate transparency and business certainty, and streamline the sending of meeting materials to shareholders.
Some of the statutory amendments affect distributing corporations under the Canada Business Corporations Act (CBCA) and the Canada Business Corporations Regulation, 2001 (CBCR), which are essentially publicly traded corporations subject to provincial securities law. These amendments include
- requirements for the disclosure of information about the diversity amongst directors and members of senior management;
- changes to the process for the election of directors, which includes individual voting rather than for a “slate” of candidates, and voting for and against; and
- changes to permit the use of notice and access for providing documents to shareholders, including financial statements, required for shareholder meetings.
This package of regulatory amendments relates to the diversity disclosure requirements as established by Bill C-25, which are being brought forward ahead of the other regulatory amendments associated with Bill C-25. The Bill stipulated that the prescribed information respecting diversity would be established by regulations.
In his appearance before Parliamentary committees, the Minister of Innovation, Science and Economic Development (ISED) referenced the four designated groups under the Employment Equity Act while recognizing that corporations can be more inclusive. The proposed regulations that were available to Parliamentary committees, and were publicly available on ISED’s website shortly after Bill C-25 was tabled, described those four designated groups.
The aim is to bring forward these regulations ahead of the other regulatory amendments associated with Bill C-25 and have the provisions in force before the 2020 proxy season, the period during which many corporations hold their annual shareholders meetings. The other regulatory amendments required to bring the remaining provisions of Bill C-25 will be implemented soon thereafter.
Objective
The objective of these proposed regulatory amendments is to bring into force the diversity disclosure provisions of Bill C-25.
Description
Bill C-25 requires certain corporations under the CBCA to provide shareholders with information on the corporation’s policies related to diversity on the board of directors and among senior management. The regulatory amendments would specify that
- the new obligations to disclose this information would apply to all distributing corporations, including venture issuers; and
- the information to be described is
- whether the corporation has adopted term limits or other mechanisms of board renewal and either a description of the those mechanisms or, if no policy, the reasons for not adopting the policy;
- whether the corporation has a written policy relating to the identification and nomination of directors from the designated groups and either the reasons for not adopting such a policy or if there is a policy, the following information:
- i. a short summary of the policy’s objectives and key provisions,
- ii. a description of the measures taken to ensure effective implementation,
- iii. a description of the annual and cumulative progress in achieving the objectives of the policy, and
- iv. whether or not the effectiveness of the policy is measured and, if so, a description of how it is measured;
- whether the level of representation of the designated groups is considered when nominating individuals for directors and either a description of how that level is considered or, if not considered, the reasons why not;
- whether the level of representation of the designated groups is considered when appointing members of senior management and either a description of how that level is considered or, if not considered, the reasons why not;
- whether there are targets for representation on the board and among senior management for each group referred to in the definition of designated groups and, if so, progress in achieving the targets and either, for each group with a target, the annual and cumulative progress in achieving that target or, if there is no target, the reasons for not adopting a target; and
- the number and proportion (in percentage terms) of directors from each group referred to in the definition of designated groups on the board and in senior management.
The regulations provide the following definitions:
- designated groups means the same as its definition in the Employment Equity Act, namely women, Aboriginal peoples, persons with disabilities and members of visible minorities;
- majority subsidiary means a subsidiary whose assets and revenue are consolidated into the parents financial statements and account for 30% or more of the consolidated assets or revenues; and
- “members of senior management” means
- the chair and vice-chair of the board of directors;
- the president of the corporation;
- the chief executive officer and chief financial officer;
- the vice-president in charge of a principal business unit, division or function including sales, finance or production; and
- an individual performing a policy-making function in respect of the corporation.
These regulatory amendments are to come into force on January 1, 2020.
“One-for-One” Rule
The “One-for-One” Rule does not apply, as there is no incremental change in administrative burden on business. While businesses will incur new costs to comply with the regulatory amendments, these costs are not considered administrative burden for the purposes of the “One-for-One” Rule as they are not incurred to demonstrate compliance to the Government. A copy of the information provided to shareholders with respect to diversity among the board of directors and senior management must be sent to the Director appointed under the CBCA for public access purposes. This is a legislative requirement and is not included in the CBCR.
Small business lens
The small business lens does not apply to this proposal because there are no costs to small business.
These regulatory amendments apply to distributing corporations, which are publicly traded corporations subject to provincial securities law. Distributing corporations are not small corporations.
Consultation
Bill C-25 received first reading in the House of Commons on September 28, 2016, and received royal assent on May 1, 2018. The proposed regulations related to the Bill were available on the ISED’s website from December 13, 2016, and stakeholders were invited to comment on the proposals.
Two comments were received that relate to the diversity disclosure provisions. The Canadian Securities Administrators provided comments with respect to the specifics of how diversity disclosure would be reported to shareholders in relation to the specified groups, such as reporting separately or cumulatively.
The Canadian Coalition for Good Governance indicated that any changes affecting the annual meetings of shareholders, such as the requirement for diversity disclosure, should be timed to minimize disruption to the proxy season, the period during which many corporations hold their annual shareholders meetings. The effective date of the regulations takes this comment into consideration and gives sufficient time for corporations to comply with the new requirements.
On May 7, 2019, a Notice of Intent was released on the ISED website and sent to stakeholders for a 10-day consultation period. Two submissions were received, the first from a corporate lawyer and the second from a large accounting firm.
Both submissions were supportive of the adoption of diversity disclosure. The first submission stated that the adoption of diversity disclosure was a sound strategy to put pressure on leading Canadian corporations to think about how to increase diversity on boards and in senior management. The second indicated that boards stand to benefit from a diversity of perspectives that goes beyond gender.
Venture issuers
Both submissions, however, did not support the application of the requirements to venture issuers at this time. The corporate lawyer suggested a focus on larger corporations would increase the chances of greater representation. With greater resources to attract qualified candidates, the diversity statistics would improve for these corporations over time, which would encourage other corporations to emulate them. Including venture issuers would have the opposite effect since they are not as well resourced; the low rates of inclusiveness would provide little incentive for other corporations to change their practices. The large accounting firm thought the disclosure requirements should be strengthened for only non-venture distributing corporations.
Disclosure regimes and the impact of diversity disclosure on venture issuers were considered during the development of the legislative provisions and the related regulations. Using a comply or explain regime similar to the regime put in place by the Canadian Securities Administrators for diversity disclosure to encourage discussion within a corporation imposes a relatively minimal burden on non-ventures distributing corporations and venture issuers. Corporations that do not comply would have to explain why they do not have policies in place. Such discussions encourage good corporate governance on the part of all corporations.
Definitions
The large accounting firm proposed that the regulations refer to executive officer positions rather than senior management positions to ensure consistency with the security regulators’ rules already in place. When developing the regulations, consistency with the Canadian Securities Administrators’ rules was taken into account, thereby, the definition of “members of senior management” included in the proposed regulations is aligned with the definition of “executive officer” found in the Canadian Securities Administrators’ rules.
Self-identification
The corporate lawyer noted that corporations would have to rely on self-identification by members of designated groups other than gender since it may not be easy for the corporation to make that determination. The proposed regulations do not require the corporation to identify the individuals who are members of these designated groups which may help encourage them to self-identify.
Exemption from prepublication
In order to have the regulations in place well in advance of the 2020 proxy season, an exemption from prepublication in the Canada Gazette, Part I, was sought. The proposed regulations were set out in a consultation document that has been available shortly after Bill C-25 was tabled.
Benefits and costs
The costs and benefits of the proposed regulations are based largely on a cost-benefit analysis commissioned by Corporations Canada in 2018. footnote 2 All benefits and costs were evaluated over a 20-year period (2020 through 2039) and on an incremental basis as compared to the base case scenario that would likely exist in the absence of the proposed regulatory amendments.
Benefits
Disclosure requirements for distributing corporations are intended to improve transparency and information available to investors as to a corporation’s conduct of business. This would help investors make better and more informed decisions. Increasing participation of qualified women, or minorities on corporate boards and in senior management are an ethical and social justice issue; giving equal opportunities to all members of society.
Costs
A total of 607 distributing corporations under the CBCA will be affected by the new diversity disclosure requirement. However, 372 of those distributing corporations are already disclosing gender information with the provincial securities authorities. The required information to be disclosed for the three other groups (Aboriginal peoples, persons with disabilities, and members of visible minorities) will be similar. Those corporations have the administrative systems in place to comply with the disclosure requirements. There are 225 corporations that currently do not disclose any gender diversity information with the provincial securities authority. They are venture issuers and are exempted under the current provincial rules. It is expected that these venture issuers would have to set up a system in order to prepare the disclosure information.
The cost of diversity disclosure can be measured in terms of work effort (hours of work) required to prepare the disclosure. This may involve the collection of information from across the corporation and development of a format of its presentation. Initially, this effort may be larger and require effort of several employees. However, over time this effort should decline substantially as it would involve primarily an update of existing reporting templates. The present value costs for all distributing corporations under the CBCA are estimated to be $1.5M from 2020 to 2039 (discounted at 7%) or $140,000 on an annualized basis.
The government costs related to diversity disclosure were assessed at $6,500 a year. The government costs include the awareness campaign aimed to the distributing corporations, especially to the ventures corporations, the implementation of a means to receive the diversity information from all distributing corporations, storing of the disclosure information and providing access to any member of the public who ask for it.
Cost-benefit statement
The cost-benefit statement below shows the benefits, costs, and net benefits for the first year of the amended regulations (the base year), average annual over the analysis period, total over the analysis period (undiscounted), and present value over the analysis period. A discount rate of 7% was used to discount all annual benefits and costs.
The statement demonstrates that the total discounted costs amount to $1.5 million.
Cost Categories |
Sector/ Stakeholders |
Base Year (2020) |
Average Annual (2020–2039) |
Total |
Present Value |
|---|---|---|---|---|---|
COSTS |
|||||
Collection and preparation of information for diversity disclosure |
All CBCA distributing corporations |
$0.5 |
$0.14 |
$2.9 |
$1.5 |
Government set-up costs related to diversity disclosure |
Government |
$0.01 |
$0.01 |
$0.01 |
$0.01 |
Total costs |
$0.5 |
$0.15 |
$2.9 |
$1.5 |
|
QUALITATIVE IMPACTS — BENEFITS |
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Rationale
The objectives of the CBCA include promoting investor confidence and a competitive marketplace, which in turn can support long-term investment and contribute to economic growth. The Bill C-25 statutory amendments build on Canada’s Inclusive Innovation Agenda, including efforts to promote innovation and inclusive growth, and help all Canadians to contribute to, and share in, the prosperity of the country. Modern and well-crafted economic framework laws are the foundation upon which Canadian companies can innovate and grow to scale in the modern economy. The amendments in Bill C-25 address these issues through targeted measures.
With respect to the amendments related to disclosure of diversity, it is the Government’s intention to foster a conversation between corporate management and shareholders on this important issue. The Bill’s approach to tackle the current lack of diversity on corporate boards and senior management is to place responsibility on Canada’s corporations to advance this issue by utilizing the “comply or explain” approach with respect to formulating a policy on diversity. By providing shareholders with the facts, corporations may increasingly recognize the benefits of greater board and management diversity. A similar approach is already in place under provincial securities rules that require distributing corporations to report on their diversity policies and practices with respect to women on the board and in senior management.
The new provisions are necessary in order to give effect to the requirements for diversity disclosure under Bill C-25. The disclosure requirements will apply only to distributing corporations under the CBCA. This extends the current provincial requirements to venture corporations who are exempted under the provincial rules to disclose representation of women on boards and in senior management positions. The regulatory amendments will require the disclosure of the same information as the provincial rules, but will extend the diversity groups beyond women to all the designated groups defined by the Employment Equity Act, namely women, Aboriginal peoples, persons with disabilities and members of visible minorities. Corporations will be free to include other groups at their discretion.
To give sufficient time for corporations to comply with the requirements, the provisions are intended to come into force prior to the 2020 proxy season, the period during which many corporations hold their annual shareholders meetings. The corporation provides the notice of meeting and proxy circular to shareholders 21 to 60 days before the date of the meeting. As a result, the intent is for these regulatory amendments to apply to annual meetings held on or after January 1, 2020. This should minimize the disruption to meetings in 2020 while providing the diversity information to shareholders before they vote on directors.
Gender-based analysis plus
A gender-based analysis plus (GBA+) was conducted and it is expected that this proposal will positively affect the situation for women, Aboriginal peoples, persons with disabilities and members of visible minorities. The objective of the proposed diversity disclosure requirements is to improve transparency and information available to investors on corporate diversity. By providing shareholders with the information, the intent is that corporations may recognize the benefits of greater board and management diversity and take steps to increase such diversity.
Contact
Isabelle Breault
Acting Manager
Policy Section
Corporations Canada
Innovation, Science and Economic Development Canada
Telephone: 1‑866‑333‑5556
Email: ic.corporationscanada.ic@canada.ca