Hon. Paul J. Massicotte: Honourable senators, I rise today as the official Liberal critic at second reading for 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.
The provisions of this bill seek to harmonize federal framework legislation on corporate governance and adapt them to the changing Canadian market and best practices. They also seek to make the director election process more democratic for certain corporations and cooperatives and to modernize communications between corporations and their shareholders, as well as between cooperatives and their members. The bill proposes a system to encourage some corporations to increase diversity and the number of women in leadership positions.
My main concern has to do with the last part of Bill C-25, which states that publicly traded companies would have to provide information to shareholders annually about diversity among directors and the members of senior management.
I would like to congratulate the government on this proposal. It will update existing standards for female participation at the federal level and enhance diversity in general.
Canada lags behind other developed nations in terms of women’s representation on corporate boards. In 2016, only 13 per cent of the board members of Canadian companies listed on the Toronto Stock Exchange were women, compared with 16 per cent in the United States and 26 per cent in the United Kingdom for similar large corporations.
Moreover, even though the proportion of women in leadership roles in Canadian corporations is increasing, progress is not very satisfactory. Three years after the Ontario Securities Commission moved forward with the comply-or-explain rule, board seats occupied by women in Toronto Stock Exchange listed companies only rose from 11 to 14.5 per cent. As to women in senior management roles, in 2017 the percentage sits at 15 per cent and has since 2015. At this rate, how many decades will it take to reach equality? I’ll let you do the math.
As to diversity, the situation is even worse. In 2017, only 3.3 per cent of the board members of Toronto’s largest companies belong to a visible minority, yet visible minorities account for 50 per cent of Toronto’s population.
While Canada proudly champions diversity as one of its main foundations, the lack of diversity in corporations is an equality issue. Moreover, if our companies do not reflect the social fabric of the markets they serve, it can be an economic issue.
A consensus corroborated by data is emerging that boards with a diversity of backgrounds, experiences and expertise outperform those that don’t. Several studies have linked boardroom gender diversity with better financial performance. Catalyst, an organization that promotes the advance of women in the workplace, reported that companies with the highest representation of women board directors outperformed those with the lowest representation of women. Even a study conducted by Credit Suisse Group, one of the world’s leaders in financial services, has demonstrated that companies with more women in the boardroom bring better returns and outperform the stock market. And according to a recent study by the Nordic banking group Nordea on 11,000 publicly traded companies across the world, companies with a female CEO or a female head of the board of directors showed superior annualized returns.
As evidenced by sluggish growth in female representation and diversity in corporate leadership, we obviously can’t simply count on social norms and practices evolving naturally. We need laws like this one to drive social evolution and apply the necessary pressure. However, are the diversity measures in this bill equal to the scope of the challenge?
I would like to share two important questions arising from these proposals, questions the committee should consider. First, is a corporation’s mere voluntary declaration about its diversity policy or lack thereof, accompanied by relevant figures, enough to boost female representation on boards and in senior management?
Indeed, if the goal is to be within striking distance of gender parity by 2027, which is a reasonable and logical objective given that women account for 48 per cent of the active population and over half of Canada’s university graduates, perhaps more stringent measures would be appropriate.
In the three years since the Ontario Securities Commission adopted the “comply or explain” principle, the proportion of companies with a written board diversity policy has jumped, rising from 34 per cent in 2016 to 47 per cent in 2017. However, only 3 per cent of companies have set targets for appointing female directors, and many seem to be invoking the issue of merit as an excuse to justify these mediocre results. Since we continue to unconsciously define merit based on traits traditionally associated with white males, the status quo persists.
If we truly want to speed up change, do we need to go as far as imposing quotas, or should we explore more prescriptive regulatory options, combined with more specific targets and sanctions?
The second major question is focused on non-gender diversity: How can we reconcile the need to increase this diversity and avoid the rigid, artificial and cumbersome side that diversity policies can have? Should one let corporations have the flexibility to adopt diversity policies that are adapted to their markets and their communities? Should corporations be free to choose to stick to four minimum diversity criteria that will be set in regulations: gender, indigenous people, visibility minorities and people with disabilities? They could also, of course, set further criteria, such as experience or geographic background.
As to targets corresponding to each of those diversity criteria, should corporations be able to set them in proportions reflecting sociological reality?
Those were my questions and comments on the diversity aspects of the bill that I hope the committee’s review and study can best answer.
Before closing, let me make a last comment on another aspect of the proposed legislation. I note that the bill does not include any provision requiring public companies’ shareholders advisory say on executive pay. This has been adopted in the United States and by the largest public companies in Canada. With the skyrocketing executive pay increases within the last couple of decades contributing to the widening gap between top and bottom income levels, I would have expected such an advisory say on pay provision to be included. I trust that the committee’s sober second thought review will also further study this possibility and its merits. Thank you for your attention.
Hon. Claude Carignan: Would Senator Massicotte accept a question?
Sen. Massicotte: By all means.
Sen. Carignan: I listened to your speech and started familiarizing myself with this bill. Since you have read and studied it, could you tell me the definition of the word “diversity” as you understand it?
Sen. Massicotte: That is an excellent question.
The bill does not actually define the term “diversity.” Most people who hear this word often think of gender and women, but its scope is far broader than that. As I said in my speech, this bill should require companies to use a broader definition of diversity, one that is not limited to gender, but encompasses all visible and other minorities. That is an important point, and I believe the term should be defined in the bill, or if not in the bill itself, in the resulting legislation’s regulations.
Sen. Carignan: Do you happen to know how many publicly traded Canadian companies are incorporated under federal law? Also, did you have a chance to check how many companies are incorporated under provincial law? I am sure you realize that if we make the standards under the Canada Corporations Act more stringent, companies might be tempted to avoid coming under federal legislation by operating under a provincial charter.
Sen. Massicotte: There are about 500,000 federally incorporated companies in existence. I do not know how many provincially incorporated companies there are, but the criteria would apply only to companies that are publicly traded. Since seven out of ten provinces have adopted these criteria to date, very few public companies would not be subject to the federal regulations that would be imposed.