Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 16 - Evidence - February 3, 2011
OTTAWA, Thursday, February 3, 2011
The Standing Senate Committee on Banking, Trade and Commerce, to which was
referred Bill S-206, An Act to establish gender parity on the board of directors
of certain corporations, financial institutions and parent Crown corporations,
met this day at 10:38 a.m. to give consideration to the bill.
Senator Michael A. Meighen (Chair) in the chair.
The Chair: Good morning colleagues and welcome to this meeting of the
Standing Senate Committee on Banking, Trade and Commerce. My name is Michael
Meighen; I chair the committee, and I am a senator from Ontario.
Before going further, I would like to introduce the members of the committee
present today. The deputy chair is Senator Hervieux-Payette, from Quebec.
Senator Hervieux-Payette is of course from the province of Quebec. To my
right as well, we have Senator Gerstein from Ontario and Senator Ataullajhan
Also present are Senator Greene, from Nova Scotia; Senator Frum, from
Ontario; Senator Mockler, from New Brunswick; and Senator Oliver, from Nova
To my left, you have Senator Ringuette from New Brunswick.
We have Senator Moore, from Nova Scotia; Senator Poy, from Ontario; and
Senator Massicotte, from Quebec.
Colleagues, today we will resume our examination of Bill S-206.
This bill requires certain corporations and financial institutions to
establish gender parity on their boards of directors. The organizations
concerned include corporations publicly traded in Canada, banks, insurance
companies, savings and loan companies, cooperative credit associations and
federal parent Crown corporations enumerated in Schedule II of the Public
Bill S-206 was introduced during the Second Session of the 40th Parliament
(S-238). It was debated on second reading and died on the Order Paper when
Parliament was prorogued.
Honourable senators, today is our fourth meeting devoted to Bill S-206. I
believe most senators would agree that our deliberations have been most
interesting, and I am sure this morning will be no exception.
Since this may be our last meeting, I would like to thank Senator
Hervieux-Payette for the work she has put into the bill. It is a good example of
how senators can bring forward issues of concern for open debate and
Today we have just one witness before we proceed to clause-by-clause
consideration. Appearing before us this morning is Ms. Judy Cotte, General
Counsel and Director of Policy Development for the Canadian Coalition for Good
Welcome to our committee. If you have an opening statement, I am pleased to
hear it, and then I hope you will be open to taking questions from the senators.
Judy Cotte, General Counsel and Director of Policy Development, Canadian
Coalition for Good Governance: I would be more than happy to. First, I would
like to thank the committee for the opportunity to attend today and provide the
coalition's perspective on this bill. I have provided the committee with a
written brief in advance of our attendance that contains a more detailed version
of my remarks today.
In case you have not had an opportunity to review that brief, I will briefly
introduce who we are. The Canadian Coalition for Good Governance, CCGG, is a
coalition of most of Canada's leading institutional investors whose mandate is
to improve the governance of Canadian public corporations and to promote the
efficiency and effectiveness of the Canadian capital markets.
Collectively our members manage retirement assets of approximately $1.5
trillion, an amount equal to approximately half the retirement savings of all
Canadians. Typically our members own between 20 per cent and 25 per cent of the
shares of Canada's largest companies.
Our brief contains a detailed discussion of the importance of good governance
for Canadian public companies. In brief, our members believe it leads to more
efficient use of capital, better investment returns and lower levels of risk.
As the overseers of management and long-term corporate strategy, directors
are the cornerstone of good governance; a well-governed company needs a quality
board with competent directors. It is impossible to define either term
precisely, but at a minimum, you need individuals with integrity and the
requisite business and industry knowledge. You need individuals who are willing
to question management's assumptions, their proposed strategies and the risks
associated with them.
We do agree that to do all of that effectively, you need a sufficiently
diverse group of individuals. On the issue of gender diversity particularly, we
are mindful of the research showing a correlation between more women on boards
and improved financial performance.
Evidence also suggests that diverse groups outperform homogeneous ones when
performing complex tasks. In our view, increasing the number of women on boards
in Canada should have a very positive effect on Canadian public companies.
However, in our view, gender diversity cannot be considered in isolation;
alone, it is not sufficient to ensure a high- quality board. Boards also need to
be functionally diverse, so that they are comprised of a group of individuals
with a wide variety of experiences, views and backgrounds and will bring those
different perspectives to bear on their oversight of management.
I would like to refer you to a report that only came to my attention after I
submitted our written brief. I am happy to provide a copy to you after today, if
you would like.
The report is entitled Diversifying the American Board. It was issued
after the Deloitte Center for Corporate Governance, the Millstein Center for
Corporate Governance and Performance at the Yale School of Management and the
Financial Women's Association brought together a group of 22 business and
corporate governance leaders, including investors, corporate managers, directors
and advisers. They brought them together in May 2010 to discuss practical ways
to diversify corporate boards, and they concluded in that report, as we do, that
you cannot consider diversity in a vacuum. The essential skills needed by a
board at a particular time must have primacy in the search process.
In our view, the lack of gender and other diversity on boards largely results
from the fact that when boards undertake that search process, they typically
look to their existing business and social relationships. As a result, they tend
to choose people with similar backgrounds, views, genders and ethnicities. If
boards were required to institute a professional recruitment process to identify
individuals from a variety of backgrounds, diversity in all of its forms would
I will talk more about how to encourage the development of a professional
recruitment process after I address our position on this bill in particular.
Turning to this proposed bill, while we certainly support efforts to improve
gender diversity on boards, we do not think this bill is the right way to go
about it. In our view, a mandatory quota is simply too blunt an instrument and
could create practical difficulties for boards.
One example that we have included in our brief illustrates the point. If you
consider a board with 50 per cent male and 50 per cent female directors, if a
woman resigns and the board finds an ideal candidate with exactly the right
skills and experience needed by the board at that time but that candidate
happens to be male, should the board be required to reject him simply because it
would upset the gender balance on the board?
In our view, that would not be in the best interests of the company or its
shareholders. The Deloitte report to which I referred also considered and
rejected the use of quotas, in part because they recognized that the qualities
of an ideal board will necessarily vary company to company and from time to
In addition to limiting choice, we are concerned that the dramatic and
relatively quick change that would be required by this bill would disrupt the
ability of the board to oversee management and the overall strategic direction
of the company. As there are currently so few women on boards, for many
companies, if not all of them, this bill would require half the directors to be
replaced. Even with a three-year phase-in period, that potential disruption
could be significant.
I would like to emphasize that we do not believe that Canadian public
companies should have any difficulty finding qualified female candidates to
serve on their boards. However, we do think they need sufficient time to recruit
them and integrate them into the board in the ordinary course.
Moreover, our members are concerned in principle with the use of mandatory
quotas. Experience has shown that quotas can have unintended consequences, not
the least of which is the potential stigmatization of the groups they are
intended to promote.
Since we are confident that there is no shortage of qualified female
candidates to serve on Canadian boards, we think that this potential stigma is
not worth the potential benefits. We think there are better ways to address the
There are three preferable alternatives that could be pursued to increase the
number of women on boards, all of which are discussed in more detail in our
written brief. The first one is to give shareholders the power to elect and
remove directors. In Canada, shareholders do not have the power to vote for or
against directors; they can only vote for them or withhold their vote, and a
withheld vote has no practical legal effect. As a result, a director can be
elected with just one vote; and if they are a shareholder, which they inevitably
are, that vote can be their own. If a majority of shareholders or even 99 per
cent of shareholders withhold their vote against a director, that director will
be elected or, if sitting, will not have to vacate their seat on the board.
We have been working to change the way directors are elected for many years.
The current law allows directors to entrench themselves and acts as a barrier to
diversity. If shareholders had the power to vote against directors, they could
address issues of director competence and diversity. For example, they could
vote against directors who are nominated simply because of their social
connections and who do not add value to the board. They could also vote against
the chair or members of the nominating committee if the nominating committee
refuses to put forward female candidates.
CCGG has persuaded 130 of Canada's largest companies to adopt a majority
voting policy as a way around the current state of the law. It requires
directors who do not receive a majority of votes in their favour to resign their
position. However, this is a limited tool because it has only been adopted by
130 companies. As well, the policies that have been adopted all provide that the
board can refuse to accept that resignation.
The second alternative that we advocate is to give shareholders what is known
as proxy access. Giving shareholders the power to nominate their own directors
would be an even more effective way to increase the number of women on boards.
In our view, significant long-term shareholders should have the ability to
nominate some of their own directors in addition to the directors nominated by
the company and have their list of nominees included in the company's proxy
circular that is delivered to its shareholders in advance of the annual general
Although there are currently some ways in Canada that shareholders can
attempt to nominate a director, the legal requirements are extremely onerous and
prohibitively expensive, even for large institutional shareholders.
The third change we would advocate to improve the number of women on boards
is to require better disclosure of companies' diversity and recruitment
practices. As we have detailed in our brief, we do not think this issue has to
be left to shareholders alone. If all Canadian public companies were subject to
more detailed disclosure rules on how they recruit new directors and were
required to disclose how they consider diversity in their recruitment process,
both would likely improve. To use the oft-quoted phrase from the U.S. Supreme
Court Justice Brandeis, ``Sunlight is the best disinfectant.'' Experience has
shown that disclosure rules do shape corporate behaviour.
An increased disclosure of recruitment and board diversity policies is also
endorsed by the Deloitte report I referred to earlier.
To conclude, we agree that the boards of Canadian public companies need to be
more diverse. We do not agree that the proposed bill goes about achieving it in
the right way. We are concerned about the restrictions and the potential
disruption that could result from a strict quota as well as the potential for
We believe it is far better to give shareholders, as the ultimate owners of
the company, the power to nominate their own directors, to hold them accountable
and to remove them if necessary. In this way, shareholders can ensure that
companies build competent, diverse boards comprised of people with the skills
necessary to oversee the company.
As a policy initiative to complement that approach, companies should be
required to disclose more information about their recruitment and diversity
practices to better equip shareholders with the information they need to assist
individual directors and the overall performance of the board.
I would add that this approach would have the added benefit of applying to
all Canadian public companies and not just those that would be covered by the
I am happy to take your questions.
The Chair: Thank you very much, Ms. Cotte, and thank you for the
excellent brief you submitted. That will be very helpful to us.
Senator Gerstein: Thank you for appearing before us with a very
Approximately 40 or 50 years ago, an extremely famous business leader of
Canada once said that the criterion for being a good board director was ``being
a gentleman.'' I have the privilege of serving on several boards. Some of us sit
on the New York Stock Exchange and some on the TSX.
I was very interested in your comment about the professional recruitment
process. I experienced situations in past couple of years where we have gone out
to find new directors in different companies. There were three occasions, and
two of the three ended up being women. I must say that none of the directors
recruited was known to anyone on the board because we had gone through a
professional recruitment process. We had, in effect, hired an outside group to
I would be interested if you would expand on that. Is that something you are
Ms. Cotte: It is an excellent point, and I think that much of this
change would flow from changing the traditional way directors are recruited.
That really is the core of the problem. Your point is very interesting because
one of the specific recommendations in the Deloitte report was to ensure that at
least some of the candidates put forward were unknown to the current board
members. That is a really important point.
It is important to use professional recruiters because they will cast the net
wider. If the net is cast wider, you will inevitably capture more women,
minorities and people with different backgrounds beyond just former CEOs.
Also professional recruiters tend to eliminate the influence of the CEO in
the process. Many people on the ground will say that the CEO is driving board
recruitment behind the scenes. In our view, that is wholly inappropriate.
Therefore, the use of a professional recruiter would help to ameliorate that, as
Senator Oliver: Thank you for your excellent report. I am a strong
believer in the work of the Canadian Coalition for Good Governance — I think you
do excellent work. I also agree with the premise of the remarks you made today
and believe you have reached the right conclusions.
However, I am interested in your three alternatives. They have had, so far at
least, very limited success or impact. I am particularly interested in the third
one, which was the need for better disclosure of diversity and recruitment
practices. I would like to know what you have done about it and what success you
have had on that. Do you write a letter to a CEO saying, ``When you have your
annual meeting, I want you to do this''? How do you go about it, what has been
done, and what success have you had with it?
Ms. Cotte: There are two levels: The first would be changing the law,
and the second would be encouraging practices company by company. In terms of
changing the law, Canada is really lagging behind on its disclosure requirements
around recruitment and diversity. Just this past year, the U.S. Securities and
Exchange Commission, SEC, improved the American disclosure requirements and are
requiring boards to talk about whether they consider diversity in recruitment,
and if so, how, and how do they assess its effectiveness.
In Canada, the disclosure requirements do not go that far. There is very
little mention of diversity. The Canadian Securities Administrators, CSA,
guidelines says that one of the questions boards should ask themselves is
whether candidates have a diversity of views, experience and backgrounds. That
goes some of the way but not all of the way.
On a policy level, we believe CSA should be improving disclosure in that
Senator Oliver: What has the coalition done about it?
Ms. Cotte: CSA looked at changing the corporate governance guidelines
some years ago and did an overhaul of them. We were not in support of the
approach they took, which, in our view, would lessen the governance
requirements. Since that time, they have gone back to the drawing board and have
not indicated a willingness to reopen the current corporate governance
They just did a review of compliance with the existing disclosure practices
and have found that companies are not even doing a very good job at complying
with the requirements we do have. That is something we encourage them to monitor
and at least get companies to comply with the existing disclosure requirements.
However, on a company-by-company basis, we meet directly with the boards of
Canadian public companies. We started two years ago and met with 10 companies;
the next year we met with 30, and this year we will meet with 50.
Senator Oliver: Do you raise this issue?
Ms. Cotte: We certainly raise the quality of their disclosure, and we
particularly focus on having a professional recruitment process.
Senator Oliver: Is there any voluntary uptake on that?
Ms. Cotte: I do not have in my head the extent to which it has
improved. Our engagement process is relatively new, but it is something we raise
with them. The quality of the directors on their board is always front and
centre in our engagements with boards.
Senator Ringuette: Thank you for your presentation. I am sorry for my
naiveté, but this Canadian Coalition for Good Governance is a new entity with
which I am not familiar. How long has this entity been around?
Ms. Cotte: It was formed in 2003 with 8 institutional investors. It
has grown steadily since that time to our current number of 45 institutional
Senator Ringuette: In your presentation, I think you mentioned at
least three or four times the usual phrase we hear in this committee, the
unintended consequences that are usually spoken by bankers. It prompted me to
look into your membership list, and I see that most of the Canadian banks are
part of your coalition.
Ms. Cotte: The bank-owned funds are, which are separate from the
banks. The banks themselves are not because they would be issuers with which we
engage and review their disclosure. However, the bank-owned funds are members.
Senator Ringuette: With respect to the list of membership that you
have here and the three processes you spoke about — the shareholder voting,
disclosure and so on — how many of your members would adhere to these three
Ms. Cotte: All of our members would support majority voting, giving
shareholders the power to vote for or against directors; proxy access, giving
shareholders the ability to nominate some of their own directors; and improved
disclosure around recruitment and diversity.
Senator Ringuette: No, I am not asking if they are supporting — they
should be because those are the three processes you are promoting. I am asking
whether, in addition to supporting, they have enacted on their boards the three
processes you are promoting.
Ms. Cotte: You mean the fund boards?
Senator Ringuette: Your membership, which is promoting those three
processes, are they themselves enacting the processes, or is it just a
pie-in-the-sky kind of theory?
Ms. Cotte: We, as a coalition, are focused on the governance of
Canadian public companies.
Senator Ringuette: Yes, but they are Canadian public companies. Are
they themselves adhering to and practising what they are preaching?
Ms. Cotte: We do not, as a coalition, get involved in the internal
governance of our members. In fact, because they are not public corporations,
for example, majority voting or proxy access would not even be an issue.
However, our members do endeavour to make every effort to be well governed and
disclose everything relevant to the investors in their fund. Obviously, that
would be very important to our members.
Senator Ringuette: You are not able to tell us that your members have
put in practice the three processes that you suggest we should be looking into.
Furthermore, we definitely know that good corporate management and
responsibility has been an issue in Canada, as it has been elsewhere in the
world. Have you made any efforts toward the Government of Canada to put forth
good government legislation and the three processes you are promoting?
Ms. Cotte: Yes, we have. In fact, the Canada Business Corporations
Act, CBCA, is currently under statutory review. We appeared before the
parliamentary committee, to make 10 different recommendations, which included
majority voting and proxy access. We did not deal with the disclosure point
because it was not relevant to the bigger picture.
In June of 2010, the parliamentary committee recommended that the government
study our recommendations further, and we continue to work with the officials
and the Ministry of Industry, urging them to review the CBCA. We also
continually interact with securities regulators to urge them to change the laws
in many different respects. We are just about to put in a submission on
disclosure of executive compensation, for example. We do regularly work with
lawmakers to try to get the laws changed to give shareholders more power to
Senator Ringuette: Does that include also modernizing the Canadian
boards in how they operate and in how they recruit through the professional
recruitment process to which you have referred?
Ms. Cotte: Correct.
Senator Ringuette: Has that been successful thus far?
Ms. Cotte: We have met with some success, certainly. Changing the law
is a long-term process. We feel, for example, that the executive compensation
disclosure rules have definitely improved since we began working with the CSA to
The law is slow in that regard. We have found, for example, that we have not
been able to have majority voting instituted in Canadian law. However, by
meeting directly with boards and persuading them that this is important and
explaining why it matters, and that accountability is important to shareholders,
we have been able to get 130 of Canada's largest companies to adopt it.
Similarly, ``say on pay'' is not yet law in Canada, but so far we have been
able to persuade 45 large companies to adopt it and use our recommended form of
We always try to work on two fronts. We work to try to have the law changed
because that is really the only permanent solution that will affect all public
companies. However, where the law moves slowly or does not move at all, we
engage directly with the boards of companies to try to persuade them to change
Senator Ringuette: Can you tell me, which of your coalition membership
put in practice disclosure of director and CEO income and so forth, which you
just mentioned and are promoting?
Ms. Cotte: First, it is a bit of an apples and oranges comparison
because our members are not public companies. For many of our members, it would
not make sense to say that they should adopt majority voting. As well, the
disclosure requirements are much more rigorous for many of our members. For
example, mutual funds have certain disclosure requirements under securities law.
Obviously, our members, who devote a lot of time and money to good
governance, would all consider themselves to be well governed. However, much of
what we advocate in public companies would not apply to them. That is not
something on which the coalition focuses; the coalition focuses on the good
governance of Canadian public companies.
Senator Ringuette: I think all Canadian corporations think they are
well governed, but we have seen some data that indicates otherwise. I am looking
at a document by the International Finance Corporation, IFC, of the World Bank
Group that was just handed to the committee members this morning.
The Chair: I want to point out that this document, as Senator
Hervieux-Payette told me, comes from Washington. It is, therefore, only in
English. I hope everyone is agreeable to having it referred to and circulated.
Senator Hervieux-Payette: I want to add that the president of the
organization just flew in from Washington this morning, and she carried the
documents across the border with her.
I would like to welcome Ms. Natividad. Ms. Natividad is visiting relatives,
and I invited her to attend our meeting this morning. She supplied the study,
which they conducted worldwide. They are covering an extensive area, and I thank
her for that. Of course, the publication is not in both official languages
because it is not a Canadian publication.
The Chair: In any event, I wanted to make that formality clear.
Thank you for being here, Ms. Natividad. We welcome you. We hope you were not
asked at the border whether you were coming to do work, as many of us are when
we are going to the United States. We have learned through sad experience that
the answer is ``no.''
Senator Ringuette: I guess you were just handed this report. I am just
breezing through this and looking at the situation of competent women around the
world having access to those boards. Yesterday, and before Christmas, when
witnesses began appearing before our committee, it became clear that we are
looking at an old boys' network.
How do you, through the members of your coalition, break that old boys'
network? How do you ensure that they have representation of women and of
Not long ago, we in Canada were preaching that Canadian companies should hire
people from different ethnic communities to increase their understanding of
their customers. Why should it not be the same for corporate boards in the way
they should understand investors and also their clients?
Ms. Cotte: We absolutely agree that you have to break the old boys'
network to begin to solve the problem. However, in our view, the three ways we
have set out are the three ways you can begin to do it. Give shareholders the
power to vote against directors who are not performing and who maybe have just
been on the board too long.
Board renewal is part of this too; we raise this issue when we meet with
boards. If we see directors who have been on the board for a long time, we raise
the issue of whether it is time for some fresh perspectives and fresh blood.
First, you give shareholders the power to remove directors and nominate
directors so that they themselves can cast the net wider — they do not have to
wait for the board to do it. Then you give the shareholders better information
so that they can assess board practices.
When you have disclosure requirements — and securities law is full of
examples of this — it shapes corporate behaviour. When companies are forced to
disclose what they do or do not do around board recruitment, no company wants to
say, ``I asked my buddy from the golf club.'' Disclosure requirements shape
In our view, those are the three best ways to go about this.
Senator Ringuette: What are the unintended consequences you refer to
when you use the word ``force''? Does the word ``force'' mean legislation?
Ms. Cotte: No. There might be a myriad of unintended consequences. I
do not consider myself a social science expert on quotas, but I know there is a
plethora of social science research looking at the unintended consequences of
One that immediately comes to mind is the potential stigmatization of the
people who are brought in under a quota. There has been a controversial
experience with affirmative action programs in the U.S. In our view, because
there are many qualified women and because we do not think boards will have
difficulty finding qualified women, we think the potential risk of that stigma
is not worth the benefit.
Senator Frum: This is a bit in the realm of anecdotal social science,
but I am wondering about the culture shift that we see. I keep harping on how
the demographics of our education are changing so strongly.
In terms of breaking up the old boys' network, we have a staffer here who was
saying yesterday that his law class was 70 per cent female and 30 per cent male.
Even if boards stayed in the culture where they recruit who they know, they will
know women. Women are the people who are coming to the fore.
Could you say, even on a cultural level, that you see a generational shift
happening organically, aside from everything else?
Ms. Cotte: I would have to speak personally in that regard.
Personally, not speaking for the coalition, I do think there is a generational
shift. Perhaps not my generation, but probably the next generation is even
better than mine was. In time that generation will grow up and gain more
experience, and that will address some of this, but I do not think it will be
enough. I think the law needs to change in the ways we have suggested to break
through that. However, personally, I think this will improve over time.
Senator Frum: I agree with Senator Oliver that these proposals are
very strong. However, in addition to that, you also have the weight of simply
the reality of who is in the workforce and who will be available, and
increasingly it will be qualified women.
Ms. Cotte: I personally think that is true and that in time the pool
will continue to grow. However, we have to deal with the fact that there is a
pool out there right now that is not being accessed. My personal view is that
the pool will continue to grow.
Senator Oliver: I would like to receive a copy of the Deloitte report.
Ms. Cotte: Certainly. I will send it to the clerk.
Senator Oliver: We are a parliamentary committee, a committee of the
Parliament of Canada. What, if anything, can we do, apart from amending
securities law, about better disclosure and the other three points that you
Also, how diverse is your coalition board?
For more than 20 years, I have worked very hard on getting the four target
groups more eligible to serve on large Canadian boards, that is, Aboriginal
peoples, the disabled, visible minorities and women. I have personally spoken
with some of the largest professional recruiters in Canada.
In private conversations, I have heard horror stories about some of the
things that happen when they bring into the board committee the name of an
eminent woman, an eminent visible minority or an eminent Aboriginal. There have
been occasions when that person happened to be the best there was, but it was
rejected by the board and lawsuits ensued.
What, if anything, can you say to help us in that regard? These professional
recruiters do their job, but it is rejected and lawsuits ensue.
Those are my four points.
Ms. Cotte: Turning to the first point of what a parliamentary
committee can do, majority voting and proxy access would actually have to be
implemented through corporate legislation, through the CBCA. With the CBCA under
statutory review right now, to see those changes implemented in the CBCA is
something that could potentially work with industry. We are actively working
Certainly, a message from any lawmakers to CSA that this is important and
that this is something that lawmakers want, while perhaps not resolving the
issue, might provide some assistance, as we are also continually telling the CSA
that this is important and that the law needs to change.
I think your second question was about our coalition board. We have 10 board
members. For years, we had two women on that board, including our vice-chair who
was scheduled to become our chair this year. Unfortunately, she retired, so we
are down to one woman.
Senator Oliver: One out of 10 board members?
Ms. Cotte: Right. However, it is important to bear in mind that the
way our board is structured, it is only, by design, the CEOs of the funds, so it
is not a typical board in that regard. Our board is comprised of the heads of
the funds. That is precisely what we are saying for public boards. You do not
need to have just former CEOs. However, the way our board is structured, because
we are speaking on behalf of our members, it is only the CEOs of the funds.
With respect to diverse groups being brought forward and shut down by the
board, as you get board renewal and more diverse candidates on the board, I
think that is something that will change with time. Unfortunately, that cannot
be fixed right away. As you have board members who are new, who are women and
who are themselves minorities, I would hope that would make them more welcoming
to more diverse candidates.
Also, requiring boards to disclose whether they have a policy on diversity,
how they consider diversity and how they assess whether their policies on
diversity are working will eventually influence that behaviour. It will say
nothing to shareholders if the board has a great policy on diversity but, in
fact, does not appoint or offer up any diverse candidates for election.
Disclosure does have a way of shaping behaviour.
Senator Poy: Do I understand correctly that at the moment your
organization is working on persuasion, and you really need legislation to get
the three processes in place?
Ms. Cotte: That is correct.
Senator Poy: Therefore, your member organizations do not necessarily
follow the three processes, is that correct?
Ms. Cotte: As I said, those processes may not be applicable to our
members because our members are not Canadian public companies. It is a bit of an
apple and oranges equation, so that is a difficult question to answer.
As a coalition, we are focused on the governance of Canadian public
companies. That is what we work to improve.
Senator Poy: Yes. You mentioned the word ``diversity'' a number of
times, and Senator Oliver just mentioned diversity. To me, diversity is not just
gender diversity; it is diversity of different people from different ethnic
Today in our Canadian society, we have many people from outside of Canada. In
fact, one in five, I believe, is born outside of Canada. Thus, for our public
companies to reflect the needs of the country or even internationally, we need
diverse boards to run these companies. Is there a policy in your organization to
also stress diversity of ethnicity?
Ms. Cotte: In fact, you will see in our brief that we make the point
that we are looking for diversity in all of its forms. That is one reason why we
do not support this legislation. We think gender diversity is part of the
equation, but it is not the whole equation.
We tend to focus on diversity of views, experiences and backgrounds, which
goes to the competence of the directors to oversee the company. If you take that
meaningfully, if you look for diverse experience, views and backgrounds, you are
likely to get all forms of diverse candidates. You are likely to get women,
minorities and people from different economic backgrounds. This is important to
bring forward different perspectives so that people will ask probing questions
of management and not just have everyone thinking and acting the same way. We
would agree that gender diversity is just a piece of the puzzle.
Senator Ringuette: When you answered Oliver's question, did I hear you
correctly when you said that on the coalition board, there is only one woman?
Ms. Cotte: Currently, yes.
Senator Ringuette: Just one woman in how many members?
Ms. Cotte: Ten.
Senator Ringuette: How many of your 10 members are of ethnic
Ms. Cotte: It would depend how you define that. I do not know the
answer to that.
Senator Ringuette: As defined in Senator Oliver's discussion.
Ms. Cotte: We do not have any visible minorities on our board.
Senator Ringuette: Then it is 0 out of 10. Thank you very much.
Ms. Cotte: However, I would like to add two points. First, as I said,
for many years, we had two women, including our vice-chair, who was scheduled to
become the chair of the coalition. She retired this year, so she could no longer
be the chair of the coalition. Second, it is important to bear in mind our board
is structured differently. Our board is made up of the CEOs of these funds
because of the importance of the work they do.
Part of the reason a public company board has had little or no gender
diversity is because too often there is a tendency to look to existing or former
CEOs. We say that that should not be the only type of person welcomed on to a
For our board, which is not a public company board, because of the importance
of the work we do and because we are speaking on behalf of funds, our board
members must be very senior executives at those funds. Therefore, I do not think
it is an entirely fair comparison.
The Chair: Now you have confused me; I thought they had to be the CEO.
Ms. Cotte: I said it that way because they are all the CEOs except
one, who is a very senior executive.
The Chair: I see. They are ex officio, in effect, and they come by
reason of their position.
Ms. Cotte: Exactly.
The Chair: The problem, if there is a problem, in your view, lies with
the corporations not with your organization.
Ms. Cotte: Exactly, because we are not a public company board. I think
it is an unfair comparison. As I said, looking only to former CEOs, we think is
the problem with historical recruitment for public company boards.
Senator Gerstein: I would divide my comments into three: first, an
observation; second, a clarification; and third, a question.
My observation is that I was delighted when you were talking about the
emphasis you are now starting to place on term limit on boards. I saw general
agreement around this table, so I suspect we have recruited a number of people
to support term limits in the Senate, which comes as a great delight because
obviously that follows the line of thinking that exists with some other
questions that were asked.
In terms of the clarification, the members of your coalition are not public
companies, is that correct?
Ms. Cotte: That is correct. They are institutional investors.
Senator Gerstein: They are institutional investors. As you look down
the list, you would ask yourself, does York University have a diverse board? I
do not have it in my hip pocket, but I suspect the answer is yes. I think as you
go down most of this list, they are. Some of these are extremely tightly held
institutional investors, and how they operate, they may be.
Am I correct, in allowing you to clarify, that when you are putting the board
together, it is basically not that you have the opportunity to go out and do a
search so that you get gender equality, diversity, et cetera; it is the result
of the people who support your organization. York University is one with which I
am more familiar; they are very diverse in their board. Whether it is a male or
a female or a visible minority who comes to represent them on your board, you
would not know who they would send. Is that correct?
Ms. Cotte: That is correct. We are a member-driven organization. We
recruit members, and then we look for volunteers from our members to serve on
our board. They typically are the CEOs of those funds who sit on our board.
Senator Gerstein: The word was used before, the ``power'' of
persuasion. From my experience on boards, the power of persuasion of the
Canadian Coalition for Good Governance is extremely high. I would suggest that
any public company in Canada that does not— that does not mean that they might
agree immediately with everything — take into consideration where the coalition
is going does so at their own peril.
Because I know you are involved in how voting is conducted for annual
meetings, slates of directors, et cetera, could you talk a little about what you
are able to do through the power of persuasion?
Ms. Cotte: That is a good question. It is a big question. We seek to
persuade companies on two levels.
The first is on the macro level where we issue best practices, white papers,
such as the 2010 Building High Performance Boards document that was
attached to our brief, which contains detailed guidelines on what we think is a
well-constituted board. We issue those large white papers, best practices, and
we urge companies to adopt them, when we meet with them and generally.
On the micro level for the companies with which we will engage, we review
their disclosure in a lot of detail. We have analysts who do a report about the
quality of their disclosure. Then we meet with those boards to tell them what we
think they are doing well and what we would like to see improve in terms of what
we are able to accomplish through those two processes. Therefore, we have those
two macro and micro levels.
Last year, we focused our engagements on the quality of the executive
compensation disclosure, most of which was incomprehensible for even the more
sophisticated reader. They all follow the legal requirements, but you could not
make any sense of it. Therefore, in our engagements, we urge companies to talk
to their shareholders in plain language to tell us what they are trying to
achieve through their compensation structure and how that structure is designed
to incent management to achieve the corporate strategy.
We have found this year that the executive compensation disclosure has
improved dramatically. The big banks in particular have done a much better job
at explaining in plain language what their goal is and how their executive
compensation program is designed to achieve that goal.
That is something that the law did not change; it was just something that we
raised when we met with boards, and we think it has been very successful. That
is an example of how simply persuasion can have quite a dramatic effect in just
Senator Gerstein: I compliment you.
The Chair: By tradition, the deputy chair of the committee always has
the right, if she wishes, to have the last word. I therefore hand over to
Senator Hervieux-Payette. So we will give the floor to Senator Massicotte,
followed by Senator Hervieux-Payette for her questions. And to both of you I
emphasize the word ``question.''
Senator Massicotte: I have been following your organization for some
time and know you represent significant shareholders. I want to compliment you
for doing a very good job. You are doing a very important job in Canada because,
as you mentioned, the legislation is not there. Therefore, I encourage you to
proceed, and your persistence is paying off. Congratulations.
The Chair: Thank you for your comments, Senator Massicotte. You are
setting a bad example for the vice-chair.
Senator Hervieux-Payette: I agree; I also think you are doing a great
I would like to refer to your own comments. You said that we have sufficient
number of qualified women in Canada to fill publicly traded company boards. Then
you referred to the quota and talked about the practical difficulty. What is the
practical difficulty to fill a board with qualified women?
If we remove the name from the CV but leave in what the board is looking for,
which might be experience in the environment or communications or finance, what
would be the practical difficulty to put before the board a CV that fulfilled
all the requirements of the company?
Ms. Cotte: I do not think I referred to practical difficulties in the
context of quotas. I talked about potential unintended consequences. In terms of
practical difficulties, I think the practical difficulties have been the
reluctance of board members to look beyond their existing social circles. That
is really the nub of the problem. Therefore, if boards are forced through a
disclosure requirement to professionalize their recruitment process, they will
not want to disclose the way they are doing it now. As I said earlier, most will
not want to say, ``I got Mr. X. He is my golfing buddy at the country club.''
Thus, disclosure requirements have a way of shaping corporate behaviour. The
practical impediments present now are a result of the boards looking to entrench
themselves and choose people similar to themselves.
Senator Hervieux-Payette: I want to clarify something. Maybe because I
am French, the word ``parity'' for me does not mean a quota. Rather, it refers
to the Canadian Charter of Rights and Freedoms where men and women are equal. I
find it offensive to say that women, Aboriginal peoples, visible minorities and
the handicapped are part of the diversity. I think we should have half-and-half,
but there should be visible women, visible Aboriginal women and also handicapped
women. The concept does not match.
I totally support diversity, but it does not go against that parity. When you
say 50 per cent, it could be either on the women's side or the men's side. I
agree with the requirement of your organization to have diversity and to push
for recruitment with that. When you go to a head-hunter firm and are looking for
people, they know who their candidates are. If Senator Oliver and Senator Poy
would be part of it, for example, she would be on the women's side and Senator
Oliver would be on men's side. It is not a contradiction between the two.
That is quite evident to me. I want it explained why this word was chosen. I
see confusion in the language and would like to have your comments on this
because you will continue your study and push for better disclosure of
recruitment and stress the diversity. Do you think you could convey this to your
organization, not to confuse parity with diversity?
Ms. Cotte: I will certainly convey it. However, from our members'
perspective, you cannot consider any form of diversity in a vacuum. First and
foremost, you must have qualified directors who are courageous enough to stand
up to management, who are capable monitors and who have the skill set necessary
for the board at any particular time.
A range of people would have those skills, but we think the quality of the
director has to be the primary consideration in the search process. However,
companies should absolutely be looking within the realm of qualified candidates
for diverse candidates who can bring different perspectives to bear on their
oversight of management. We agree that different perspectives, views and
experiences will provide better oversight, and a diverse group will be a more
capable of monitoring management.
Our problem with this bill, whether you call it ``parity'' or a quota —
Senator Hervieux-Payette: They are not the same. I want to stress
Ms. Cotte: No matter what you call it, by requiring 50 per cent at any
time to be male or female, we are concerned that that will just create a
practical difficulty for a board.
Let us use an example: You have a board of 50 per cent men and 50 per cent
women, which is perfect parity. A woman leaves, and the board manages to find
the ideal candidate needed by the board at that time. However, that candidate
happens to be male. The board would be required under this legislation to refuse
that candidate. We think that is just too onerous a restriction to put on
Senator Hervieux-Payette: Given your permanent solution to the three
points, but mainly the first two, which are the shareholder vote and the proxy,
why would the solution not be legislation about women and rather be about the
shareholders and the proxy?
I understand that you feel that with the present law, we are not
accomplishing the democratization of our corporations. For example, when I
receive my proxy to vote for a director, I cannot put any other name; I cannot
suggest anyone else; I cannot even say that someone else would be better
qualified than the one you have. I might be lucky enough to have a proxy because
I am a shareholder directly. However, if I hold a stake indirectly through a
fund, whether it is a pension fund or other, I will never vote.
Do you think we have a structural problem if we look at the original spirit
of the CBCA, which is that shareholders are the ones who are supposed to decide
who the director is?
Ms. Cotte: Absolutely we have a structural problem. That hits the
first two reforms we want. It is important to remember that shareholders are the
owners of the company. They provide the capital. They elect the directors to act
on their behalf to oversee management. For a long time, what would be the
appropriate pyramid has been completely inverted. You have management telling
the board what will happen, and then the shareholders get to have whatever is
left. We are trying to invert it back to what it is supposed to be, the
traditional corporate law paradigm, which is shareholders elect directors to
represent their interests and to oversee management.
However, to make that structure a reality, you need to have directors who are
truly accountable to shareholders. In our view, the only way to make them truly
accountable is to give shareholders the power to remove them, and then going one
step further to give shareholders the power to nominate some of their own. Why
should shareholders not be able to nominate them? They still have to be elected
by the majority of the shareholders.
Senator Hervieux-Payette: On all the shares being owned by most of
your pension funds, if I own one share in these funds, I have lost my right to
vote; it is already transferred to the fund. Therefore, as far as I am
concerned, if your system is to work by giving back the right to vote to the
shareholders, do you not agree that a women being 50 per cent of the workforce
contributing to these pension funds should get their representative on the
Ms. Cotte: Absolutely, we agree that there should be more women on the
boards. I will point out that as an individual unit holder, our members are
quite diverse; there are pension funds and mutual funds, and most, if not all,
of our members would have proxy voting guidelines that are published; they vote
in accordance with those guidelines. More women should be on boards; it is just
a question of whether you mandate it to be 50 per cent or not. In our view, that
is not something we support.
The Chair: That exhausts our list of questioners. Before we break, I
want to thank you very much, Ms. Cotte, for coming this morning. We appreciated
your input and your excellent brief, which will be of assistance to us.
Colleagues, we will take a short break to allow the witness to withdraw. Then
we will reconvene to consider clause by clause.
Are senators ready to proceed with clause-by-clause consideration of Bill
Hon. Senators: Agreed.
Senator Frum: I would like to move that we do not proceed to clause by
clause but rather move in camera to consider a draft report.
The Chair: There is a motion on the floor. Is there any discussion?
Senator Ringuette: On the agenda, it says that we are doing
clause-by-clause consideration. I think we should pursue our agenda.
The Chair: Senator Ringuette, the committee is master of its agenda,
and the committee will decide. Senator Frum has made a motion. I will put the
motion, and we will see what happens.
Senator Massicotte: Can you explain the motion?
Senator Frum: I would like to present a draft report to the committee
on how to proceed with this bill, and I would like to do it in camera.
Senator Hervieux-Payette: No; we want to know your argument of why we
will not vote or vote. We have not seen the report, and we do not know why you
do not want to study the bill. I think you owe it to us to at least tell us why.
Senator Frum: I am saying that there is a motion on the floor, and you
can vote on it or not. However, my motion is to go to draft report.
The Chair: All right.
Senator Ringuette: I have insufficient information. I have not seen
any written motion in any official language.
The Chair: We will distribute it then.
Senator Ringuette: Chair, please, we are coming to an issue of
transparency that I very much value. I think that the Canadian taxpayer values
transparency and accountability. On this issue of going in camera, I do not
favour any kind of measure that will remove transparency and accountability from
The Chair: We hear your views. The fact is that the committee can vote
to go in camera. All Senate committees have gone, and do go, in camera from time
to time. It is up to the committee whether we wish at this point to go in camera
to consider a draft report that Senator Frum wishes to present. I will call the
vote, and we will see what the committee's decision is.
All those in favour of Senator Frum's motion that we not proceed to clause by
clause but proceed in camera to consider a draft report please so signify by
raising your hand.
Line Gravel, Clerk of the Committee: Would you like a recorded vote?
The Chair: Honourable senators, we are proceeding to a recorded vote.
The clerk will call members' names, beginning with the chair and then proceeding
in alphabetical order. Senators should verbally indicate whether they vote for,
against or abstain. The clerk will then announce the results of the vote, and it
is my duty as chair to declare whether the motion is carried or defeated.
Ms. Gravel: The Honourable Senator Meighen.
Senator Meighen: For.
Ms. Gravel: The Honourable Senator Ataullahjan.
Senator Ataullahjan: Yes.
Ms. Gravel: The Honourable Senator Frum.
Senator Frum: For.
Ms. Gravel: The Honourable Senator Gerstein.
Senator Gerstein: Yes.
Ms. Gravel: The Honourable Senator Hervieux-Payette.
Senator Hervieux-Payette: Against.
Ms. Gravel: The Honourable Senator Kochhar.
Senator Kochhar: Yes.
Ms. Gravel: The Honourable Senator Massicotte.
Senator Massicotte: Against.
Ms. Gravel: The Honourable Senator Mockler?
Senator Mockler: For.
Ms. Gravel: The Honourable Senator Moore.
Senator Moore: Against.
Ms. Gravel: The Honourable Senator Oliver.
Senator Oliver: For.
Ms. Gravel: The Honourable Senator Poy.
Senator Poy: Against.
Ms. Gravel: The Honourable Senator Ringuette?
Senator Ringuette: Against.
Ms. Gravel: Yeas, seven; nays, five.
The Chair: I declare the motion carried.
(The committee continued in camera.)
(The committee resumed in public.)
Senator Frum: I would like to move that the committee adopt the draft
report on Bill S-206.
The Chair: Is there any discussion?
Senator Massicotte: I have quickly read the draft report because we
just received it. I think it is appropriate for me to explain my comments on the
draft report and more particularly the bill. I hope I can convince all of you to
support my position. However, I will not be too optimistic, so you will not
disappoint me too much if you do not.
Let me repeat some of the concepts you discuss in your draft report.
Obviously, we are talking about corporations. I certainly accept that corporate
life is very important to any country, and certainly a country such as Canada.
It is the predominant producer of wealth. It is the predominant producer of the
payment of taxes and the creation of jobs. It permits the quality of life we
have in our country. I certainly acknowledge the importance of those vehicles,
and one should be sensitive when one, for reasons of social justice, tries to
impose standards upon those vehicles because it could put at risk many important
elements. I acknowledge that.
We heard many arguments about the roles of boards, that boards should
represent the citizens, being 50 per cent or 51 per cent females; and they
should vet the shareholders' pension plans and so on. I have some difficulty
with that, to be frank. Boards of directors exist to supervise the CEO, to be a
coach and to direct management so that the corporations make the best decisions
in the interests of the corporations and, indirectly, in the interests of our
I acknowledge your argument to say that these are necessarily robust
institutions, but we should be careful how we manage corporations and the board.
Therefore, my interest relative to boards is to ensure that we always have the
best board of directors to ensure that the corporations proceed in the right
manner for the interests of our country.
I buy the essence of your arguments there. I am a free-market guy and a
business person, so I acknowledge those issues. I have strong trepidations of
imposing upon, managing or trying to manipulate those circumstances.
Look at society as a whole; look at history and read history books on the
issues of Blacks in the United States and the history of women in our country.
Last night I was reading a book on nudging that someone recommended we read. We
are social animals and have immense difficulty with change. There is an immense
preponderance to the status quo; we have difficulty with change. Within us there
is a logical side but also the natural, social and pathological side where we
have difficulty with change.
One would acknowledge that our society, throughout history, has had immense
difficulty with change where it affects women. We have been slow at
acknowledging their rights, and we are being slow in acknowledging the rights of
other minorities, also.
I accept that logic does not dictate there. Many studies indicate diverse
boards would be beneficial. Scientific studies do not necessarily prove that
better financial results occur, but there are significant arguments saying that
diversity is important at board levels, also, but in the interests of providing
I am a free-market person, but at the same time I accept there is a problem
in our society with a resistance to change.
I do not buy into the social justice argument that women have to be at parity
with men because I think a board with significant discretion is best. However, I
acknowledge there is a difficulty of immobility in our society with respect to
diversity on boards.
I would accept as an individual a nudging process for women; I would accept
that we need to push the process along. I do not accept that we should impose
gender parity because I do not accept that concept of quotas or that just
because 11 per cent are Chinese, for example, they have to be 11 per cent of the
board. I do not accept that. We have to give flexibility to corporations to do
what is right and in their interests.
I do accept that, as parliamentarians, we should try to help the process
along to ensure we get the right decision and allow more openness to women.
There is a closed-off sense with many people.
If we would have done clause-by-clause consideration of the bill, I would
have made the amendment that 50 per cent is too severe. It emboldens a parity or
rigidity in the corporate laws with which I do not agree. I would have
recommended that the 50 per cent should be a third or 35 per cent. Therefore,
there remains immense discretion to acquiring the best board members. It is
currently 16 per cent in Canada. You would be pushing corporations to accept the
concept and perhaps it should have had a sunset clause on it; maybe that the law
dies in 10 years, for instance.
Regardless, I would have encouraged you to push the process along and to get
the openness going, though not to impose parity, because I do not agree with it.
In the interests of our society, women and corporations, momentum would be
created. Momentum is important in our society, and I think we would have
achieved a better, more balanced board with an interest in society without
prejudicing the right decision and board levels at the corporate level. That is
what I would have done.
I hope to convince you that my argument is superior to doing nothing. Also, I
would have given them more time. I would have probably allowed six years to get
there. In society, you need to induce change. Look at the green movement. It is
amazing that once you get momentum going in our society things happen. We, as
parliamentarians, sometimes have to push it along. In spite of the laws in the
United States, look at civil rights. Even the constitution was clear, yet
society did not move for nearly 100 years.
It is important for us as parliamentarians to help push the process along.
Senator Oliver: I agree with much of what Senator Massicotte has said.
As usual, he makes a lot of sense. However, you will recall that the last
witness we had today said that gender alone does not make diversity. She said
that there is much more to diverse boards than just gender. My concern, which
Senator Poy raised as well, is that there are other groups that should be
considered that are expressly excluded by this bill. That includes Aboriginal
peoples, visible minorities, the disabled and other groups in Canada who ought
to also be considered for boards. Therefore, I see that as being another major
Insofar as the other arguments you made leading up to your 35 per cent, I
agree with you. However, I could not agree with it because it excludes too many
of the other target groups.
The Chair: Thank you, colleagues. There is a motion on the floor from
All those in favour of Senator Frum's motion please signify.
Some Hon. Senators: Agreed.
The Chair: Opposed?
Senator Massicotte: On division.
The Chair: On division.
Colleagues, thank you very much. That ends our meeting. I am sorry that many
of our colleagues chose not to stay. That is their right, of course. In future,
I hope there will be a different outcome.
Senator Mockler: Record or not, they can still make a minority report
if they want to do one.
The Chair: Thank you very much, Senator Mockler. Thank you,
(The committee adjourned.)