Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 30 - Evidence - December 6, 2017
OTTAWA, Wednesday, December 6, 2017
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred 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, met this day in public at 4:18 p.m. to give consideration to the bill; and, in camera, for the consideration of a draft agenda (future business).
Senator Douglas Black (Chair) in the chair.
The Chair: Good afternoon. I want to welcome my colleagues. Senator Dagenais, welcome to the committee. Welcome, as well, invited guests. We’re looking forward to your presentations. Welcome also to any members of the general public who are following these proceedings today.
My name is Doug Black, and I’m the chairman of this committee.
On September 28, 2016, the Minister of Innovation, Science and Economic Development introduced in the House of Commons 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 bill, as amended and passed by the House of Commons, was read a second time in the Senate and referred to our committee on November 23, 2017.
Last week, we heard from the Honourable Navdeep Bains, P.C., M.P., Minister of Innovation, Science and Economic Development, who was accompanied by his officials.
Today, I’m pleased to welcome our witnesses. Catalyst Canada is represented by Ashley Mac Isaac-Butler, Director, Women On Board and Government Affairs. From the Institute for Gender and the Economy is Sarah Kaplan, Director. From Transparency International Canada, we have Jon Allen, Director; and Denis Meunier, Member, Beneficial Ownership Working Group.
Before we hear from you, I would like to introduce the committee members so you know who you’re interacting with today.
Senator Wallin: Pamela Wallin from Saskatchewan.
Senator Omidvar: Ratna Omidvar from Ontario.
Senator Unger: Betty Unger from Alberta.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
Senator Tannas: Scott Tannas from Alberta.
Senator Wetston: Howard Wetston from Ontario.
Senator Marwah: Sabi Marwah from Ontario.
Senator Tkachuk: David Tkachuk from Saskatchewan.
Senator Stewart Olsen: Carolyn Stewart Olsen from New Brunswick.
Senator Downe: Percy Downe from Charlottetown.
The Chair: Wonderful.
Senator Tkachuk: Chair, it’s nice to see you in the chair. See what happens to a person who is no longer on the chair? They don’t even give them a name tag anymore.
The Chair: I don’t think that was intentional.
May we start with Catalyst Canada, please.
Ashley Mac Isaac-Butler, Director, Women On Board and Government Affairs, Catalyst Canada Inc.: Thank you, Mr. Chair and committee members. It is a distinct honour for me to be here today. It is very much full circle for me, as I began my career in this very building working with the Senate.
Today I’m here representing Catalyst Canada. Our goal is to help organizations around the world build workplaces where women and men of all backgrounds have equal opportunities to succeed. I will be focusing my remarks from the perspective of working with organizations to close the worldwide gender gap in leadership, wages and opportunity.
Let me start with a very simple point: What is good for women is good for business. Gender parity on boards is not driven simply by questions of fairness and equity. This is an issue that speaks directly to Canada’s ability to compete and flourish in a global economy. How effectively Canadian businesses leverage diverse talent, starting with women, will be critical to our long-term competitiveness, and achieving gender balance on boards and throughout the executive ranks is widely recognized as a global economic imperative.
Study after study, from Catalyst and others, has shown that having more women on boards and in senior leadership, on average, improves organizations’ overall financial performance, enables them to better serve their customers and allows innovation to flourish.
It’s fair to say that the conversation about women on boards in Canada has shifted to an encouraging direction in recent years, from why to how. Furthermore, the introduction of “comply or explain” securities law rule amendments, and the introduction of the legislation we are discussing here today, is a positive and encouraging step forward.
Yet the reality is that there is still a long way from reaching parity, which is the ultimate goal. Unfortunately, the pace of change continues to be frustratingly slow. For example, the Canadian Securities Administrators’ recent review of “comply or explain” showed little progress for women on boards and in senior leadership positions. It found that only 14 per cent of board seats on TSX-listed companies are held by women and that only 35 per cent of companies had adopted written policies for improving diversity on boards. Additionally, Osler LLP, in its annual Diversity Disclosure Practices Report, reported that men still hold 85 per cent of executive positions in Canada. Clearly, there is still work to be done.
Turning to the “how” around advancing women into leadership positions, the central question to consider is this: What instruments will most effectively bring about change? Around the world, there are numerous efforts taking place, from legislative quotas to regulatory actions to voluntary pledges or targets initiated by companies. Our recent report, Gender Diversity on Boards in Canada: Recommendations for Accelerating Progress, which was commissioned by the Government of Ontario, looked at the various approaches and their effectiveness.
Ultimately, Catalyst believes that there is no one “right” way to accelerate progress for women on boards. What matters is the intentional action and commitment to setting goals and making change. That is why, in the same report I just cited, we make several recommendations to drive change. Among these, that TSX-listed issuers set 30 per cent targets for women board directors by 2017 and achieve them within three to five years, use at least one mechanism to facilitate board renewal and establish written policies to increase the representation of women on boards; that governments reinforce the setting of targets, renewal mechanisms and written policies, track and publish progress and set a minimum goal of 40 per cent women to their own agencies, boards, commissions and Crown corporations; and that more stringent legislation or regulatory approaches be considered if progress is not made, particularly toward the 30 per cent target.
Government policies mandating companies to report the types of actions they are taking to address board diversity, as well as explaining why they may not have policies in place, force companies to address the issue. They can also provide “best practices” for other organizations to implement.
At the end of the day, while the means to increase women’s representation may vary, the key is that it gets done and it gets done quickly. Until we achieve parity in business leadership roles in Canada, they will be marginalized in every other arena. Thank you for your attention.
The Chair: Thank you very much.
Next is the Institute for Gender and the Economy.
Sarah Kaplan, Director, Institute for Gender and the Economy: Good afternoon. I thank the committee for inviting me today.
It is an honour to appear before this committee to comment on Bill C-25, in particular as it relates to diversity in the boardroom and executive suite. I am a professor and director of the Institute for Gender and the Economy at the Rotman School of Management at the University of Toronto. In this role, I promote the use of rigorous academic research to inform policy and practice, which is particularly important in the realm of gender and diversity where many common beliefs are not actually supported by data and may end up getting in the way of progress.
The goal of the diversity provisions in Bill C-25 is to increase representation of women and other under-represented groups in business leadership. From a legislative and regulatory standpoint, there are two ways to achieve this goal. The first is quotas and the second is regulated disclosure. Bill C-25, and its precursor at the OSC, follows the latter path.
The working hypothesis under this “comply or explain” approach is that disclosure of diversity statistics will be enough to motivate firms to become inclusively representative.
Unlike when Bill C-25 was first proposed, we now, in late 2017, have the benefit of three years of evidence on whether this hypothesis has been proven. The answer is that it has not. The Canadian Securities Administrators’ first review at the end of 2015 found that women held 11 per cent of total board seats. Two years later, the number is 14 per cent. The number we should be hoping for would be something like 40 per cent, which is what we see in countries like Iceland, Norway and France.
Where do we see the 40 per cent figure in Canada? Well, almost 40 per cent of companies in Canada still have no women on their boards. When we look at practices to promote diversity, only 35 per cent of companies report having a written diversity policy and only 11 per cent of firms have diversity targets at all.
Disappointingly, of the 505 board seats that were filled last year, 74 per cent were filled by men. At this rate, parity will be far beyond our reach for decades. If, as suggested in your hearing last week, replacement is the barometer of progress, then we are not making much headway.
These figures raise a question about whether the current bill will achieve its objectives. A wealth of social science research has observed the powerful effect of bias that is embedded not only in our minds but also in our systems, processes and structures. This manifests itself in the faulty assumption that qualified women do not exist or that the current imbalance we see today was produced by a meritocratic process.
For a law to have a fighting chance of displacing these dynamics, it must be equally powerful. This is why more and more countries are opting for quotas, which have meaningful consequences for not meeting the targets, specifically, substantial fines, invalidating new board appointments, withholding of board compensation, ineligibility for government contracts or dissolution of the company.
Given that Bill C-25 does not contemplate quotas, I would like to suggest three areas where the bill could be strengthened to increase the likelihood that it helps Canadian businesses achieve more appropriate representation of women and other under-represented groups. As a preface, let me note that as an American immigrant to Canada, it is my view that the Canadian government has an opportunity to show global leadership on inclusion and representation. We are at a moment in the world when Canada can be a beacon for social justice and I hope we can grasp every opportunity to do so.
First, it is a global advance for the bill to consider forms of diversity other than gender. It is again an opportunity for Canada to be at the forefront. This additional specification is important because research suggests that many diversity initiatives tend to benefit White women while ignoring other under-represented groups.
In the current form of the bill and regulations, diversity remains undefined. The risk here is that the lack of detail will lead firms to use an overly broad definition that will not accomplish the intended representation goals.
In the United States, where the Securities Exchange Commission requires publicly traded companies to report on whether they consider diversity in director appointments, the majority of firms used broad definitions focused on a director’s experience or skills, which then justified failure to appoint people from under-represented groups.
This is the challenge with the “marketplace framework” suggested by Minister Bains in his testimony last week before this committee, in which he focused on “diversity of thought, perspectives and ideas.” As a result, I recommend that a clear definition of diversity be included, likely from the Employment Equity Act, and not just as guidance.
Second, the bill in its current form only requires firms to report whether or not they have targets. My fear is that this voluntary approach will not move us beyond the 11 per cent that report having targets now. I suggest that it would usefully include a requirement that firms set and report targets rather than just explaining why they don’t.
Targets are valuable because they give citizens and shareholders a means for holding firms accountable. They are also valuable because they help firms achieve a critical mass of female representation on boards so that women are not reduced to a token status, which research shows reduces their effectiveness.
Third, and finally, I suggest a separate or supplemental reporting mechanism rather than just requiring the information to be listed in a company proxy statement. “Comply or explain” relies on comparison across peers and shareholder pressure to improve representation on boards. However, it is very hard to accomplish this goal when the required information can be placed anywhere in and in any form in a lengthy proxy statement.
To collect the information across firms, someone has to read each statement individually, look for this data and then pull them together in a report. If, however, this information were reported by companies in a separate web form or the like, the data could easily be compiled and reported to all Canadians on an annual basis. Companies could be easily ranked and their progress tracked over time. “Comply or explain” mechanisms are substantially weakened if the comparative data are not readily accessible to shareholders and all Canadians.
I am at your disposal to answer any questions, including to continue the conversation from last week about the business case for diversity, the implications for meritocracy or other topics. Thank you very much.
The Chair: Thank you very much, Ms. Kaplan.
Jon Allen, Director, Transparency International Canada: Good afternoon, Mr. Chairman and members of the committee. Thank you for the opportunity to participate in today’s hearing. With me today is Mr. Denis Meunier, a member of Transparency International Canada and a former senior official with the CRA and with FINTRAC.
TI Canada is a member of the world’s leading non-governmental anticorruption organization, with more than 100 chapters worldwide and an international secretariat in Berlin. TI Canada has been at the forefront of our national anticorruption and transparency agenda.
As we don’t have much time, I’d like to move directly to the heart of TI Canada’s recommendations regarding Bill C-25.
While TI Canada welcomes Bill C-25’s measure to eliminate anonymous ownership of bearer shares, our main concern relates to the absence, in the draft bill, of a public beneficial ownership registry of companies that are incorporated in Canada. The bottom line, as noted in a recent TI Canada report, No Reason to Hide: Unmasking the Anonymous Owners of Canadian Companies, copies of which are with the clerk, noted more rigorous identity checks are now required for individuals to obtain a library card in Toronto or Ottawa than for those establishing companies in Canada.
What we mean by this is that there is no requirement, when establishing a private company in Canada, to list the ultimate beneficial owner or owners of the corporation or the percentage of the corporation that the owners control. Corporate registries do not verify identification of those listed on the corporation, and most do not even require information on shareholders, let alone beneficial owners.
Why is this lacuna important? Because individuals involved in money laundering, terrorist financing, tax evasion and the distortion of real estate markets in cities like Toronto and Vancouver are using such corporations to carry out illegal or highly questionable activities.
Without access to beneficial ownership information, i.e., verified information regarding who actually owns the entity in question, Canadian law enforcement, the CRA and other local and provincial authorities are significantly hamstrung in their ability to pursue and respond to such nefarious activities.
The context in which we make these recommendations includes spreading populism, increasing financial pressures on the middle class, increasing income inequality and recent whistle-blower disclosures such as the Panama and Paradise Papers and events like the Charbonneau Commission. These disclosures and events provide concrete examples of how anonymous companies and other legal arrangements are gaming the system by evading taxes and laundering the proceeds of crime and corruption.
Governments around the world recognize the threats posed by under-regulated legal entities. In 2014, the G20, of which Canada is a member, issued its High-Level Principles on Beneficial Ownership, in which countries, including Canada, committed to improve the transparency of beneficial ownership in their respective jurisdictions.
In 2016, the European Commission mandated its 28 member countries to collect accurate information on beneficial ownership and create a central registry that is accessible, at a minimum, to competent authorities, financial institutions as well as those who can demonstrate a “legitimate interest” in that information. A new draft directive is now under consideration by the commission that would require that such registries become publicly available. The U.K. has already enacted such legislation and implemented new disclosure rules, and other countries, including Denmark, France, and the Netherlands are following suit. As more countries like these put up barriers to the criminal and corrupt, those looking to game the system will gravitate to jurisdictions with weaker standards.
How is Canada doing in this regard? A recent TI Canada analysis found that Canada’s performance was either weak or very weak in seven of the 10 G20 principles on beneficial ownership.
Canada’s Department of Finance assessed the inherent money laundering risks and found that domestic banks, corporations, especially private for-profit corporations, and certain types of money services businesses were rated very high risk, with corporations representing the highest vulnerability to be used to conceal beneficial ownership.
In September 2016, the Financial Action Task Force published a highly critical evaluation of Canada’s secrecy regime. The task force called on the government to make beneficial ownership information accessible “as a matter of priority.”
These reports demonstrate that Canadian companies are particularly susceptible to be used as vehicles for criminal activity and tax evasion. Beneficial owners can remain entirely anonymous — their identities concealed even from the government agencies entrusted with enforcing laws and regulations. Indeed, financial consultants abroad have a specific term for facilitating tax dodging and the funnelling of illicit funds in Canada. It’s called “snow washing.” This is a stain on Canada’s reputation as a good global citizen.
The Chair: Mr. Allen, could you move to conclusion, please?
Mr. Allen: I sure will.
As a priority, then, TI Canada recommends that the Government of Canada require all companies in the country to identify their beneficial owners. The government should then publish this information in a central registry that is accessible to the public in an open data format.
The federal government should lead in the implementation of these recommendations while also working with the provinces and territories to develop supporting legislation.
Thank you for your time today, and we will be pleased to answer any questions.
The Chair: Thank you very much, Mr. Allen.
We have a long list of senators with questions. We’ll start with the sponsor of the bill, Senator Wetston.
Senator Wetston: We have a lot of very talented witnesses here.
On the issue of quotas, targets, and “comply or explain”, I’ll start with Ms. Kaplan. You have done a lot of research, and I have read a lot of research in this area. There are so many papers produced by all sorts of think tanks and universities. Whether in Europe, the United States or Canada, whatever policy is suggested has to fit the country. The context is really important. So it’s one thing to say you have quotas in Norway, but we are not Norway. It’s one to say what the SEC does and what its disclosure is. We are not the U.S. I understand the approach you’re taking, and your comments on the approach taken in this bill are important, so help me with context here. There must be a way in which you can describe your recommendation in a Canadian context, not just comparatively to other contexts?
Ms. Kaplan: Yes, absolutely, every country has to take their own approach. The comparison is important. For example, when Minister Bains came last week, he compared the progress to what was happening in Australia or the U.K., and that comparison is being used as a way to talk about this potential legislation.
What is specific to Canada, and I say this as an immigrant and a great appreciator of Canada, is the deep commitment to diversity in this society, more so than maybe many others. In the Canadian context, it’s very important to think about how we make that commitment real.
If one were to design a policy differently, one might suggest quotas, but in the context of Bill C-25, which doesn’t contemplate quotas, the next best thing, if you want to get fast movement, is to require organizations to set targets. Right now, firms have the opportunity to simply explain why they do not have targets, which is why only 11 per cent have.
What gets measured, gets done. That would create, in the spirit of the law, the proposed bill, firms comparing themselves against each other. Comparing it on the targets they set would also be important, and that would sort of slice down the middle between quotas and the more open approach being contemplated so far in the bill.
Senator Wetston: Ms. Mac Isaac-Butler, I’m very familiar with Catalyst, and I’ve worked closely with Catalyst in the past. This bill is not about gender equity or gender diversity; it’s about diversity, so it’s broader, and you indicated that. When you discuss this issue with 30 per cent target, for example — or whatever target a corporation or business adopts — what is your view about targets with respect to diversity versus some of your remarks that have been focused on gender diversity, and how do you accommodate that with respect to targets?
Ms. Mac Isaac-Butler: We believe there are several approaches to gender parity. On corporate boards, quotas undoubtedly are the fastest, but targets can also be effective.
In Canada, those organizations that do set targets have seen results. One example I can give you is the Canadian banks. They have set targets and held themselves accountable to them today. Today, all the Canadian banks have at least 30 per cent female representation on their boards, and some are as high as 41 per cent.
Senator Wetston: You didn’t answer my question about diversity. You answered about gender, and I broadened it to be more inclusive. Perhaps, Ms. Kaplan, you have an approach?
Ms. Kaplan: We sometimes want to lump gender in with other diversity measures, and it’s important to keep those separate. First, women represent 50 per cent of the population and nearly 50 per cent of the workforce. That’s different when we talk about the other underrepresented groups contemplated in the Employment Equity Act, where visible minorities are 18 per cent of the population, people with disability 14 per cent and indigenous people 5 per cent. It is harder to contemplate exactly how you would set targets when you are talking about people in these smaller per cents, unlike in the case where women represent 50 per cent of the population. I agree with you that you have to think differently about those two populations.
There are no global benchmarks on how to do this at the governmental level. Canada would be the first. I think it’s a great thing that Canada would be the first on this, but one might say you want to target representation that is closer to the per cent in the population. Whether you set a target or whether you say, “We’re going to identify those populations in the Employment Equity Act — we might want to extend that to include the LGBTQ community — and say that your goal should be to get close to representation.”
Senator Wetston: Care to comment?
Ms. Mac Isaac-Butler: From Catalyst’s perspective, diversity is very broad. Our focus is on all women having equal access.
Senator Wetston: The issue you’re raising is important. The issue of beneficial ownership is important. There has been some discussion of that, but you’re asking for more; you’re asking for a legislative response. My question is the way you advance this issue. I recognize this is important. We all want to address white-collar crime and organized crime. We want to address those issues, and it’s important, so I don’t disagree whatsoever. But it’s not a straightforward amendment, is it? It’s much more complicated than saying, “Create a registry and, by the way, just identify these individuals and ensure the owners are actually identified.” It’s more complicated than that, is it not?
Mr. Allen: It can be more complicated than that, but the Brits have already done it. They have created a registry. It’s complicated in Canada because you have the federal government and the provinces involved, but the federal government could certainly lead on the matter. That’s what we recommend they do.
I also think that, given the tax revenues that are lost as a result of money laundering and tax evasion, the federal government and the provinces should have a great interest in wanting to do this. If the federal government came up with some model legislation or used its federal powers, they might be able to move this through quite quickly. I would hope they would. I would hope, first of all, that they agreed with us and, second, that they could find a way. We’re more than happy to provide examples of how the Brits have done it and how others are proceeding, but I think the Department of Finance is looking at it.
Senator Wetston: My other quick comment is that I’m not suggesting it’s not important. I’m suggesting it requires study and serious consideration, because if you go that way, because of the nature of our country and a lot of fragmentation here, it has to be carefully thought out as to how it might be put in place, if the government is so inclined to do that.
Senator Tkachuk: Women have been very aggressive in business start-ups and actually are the majority in small-business start-ups over the last number of years. Is there any research showing they have been just as aggressive in being shareholders of public corporations?
Ms. Kaplan: You mean as investors?
Senator Tkachuk: Yes. If you want to be on the board, you should be an investor.
Ms. Kaplan: Not all board members would have been previously an investor in the company in which they were selected to be on a board. I don’t think there is necessarily a one-to-one correlation.
We do know that women have a lot of wealth and stand to be inheritors of a lot of wealth, especially as the baby-boomer generation disappears. In fact, most of the banks are obsessed with figuring out how to speak to female investors, precisely for that reason. For a long time, banks and others who provide investment services have not paid attention to women investors.
I’m not sure we can say whether women have been “aggressive” or not on that front, but that doesn’t mean that women are not qualified to be board members.
Senator Tkachuk: I didn’t ask that question. The question I was asking was to see if they were just as aggressive in that market, because they obviously are interested in business because they are doing the small business start-ups and are very successful in it. I just wanted to see if they were also interested in the public square as well as being shareholders.
Ms. Kaplan: Absolutely.
Senator Tkachuk: I heard from the minister about the studies that were done, and when women got appointed to boards, all of a sudden profits improved and all of that stuff. I’d like you to tell me some of the companies where this has happened, and what were the numbers? When were the studies done? When were the people appointed, and what were the companies that had increased performance?
Ms. Mac Isaac-Butler: I don’t have that data with me.
Ms. Kaplan: First of all, I would say that, with all due respect to my Catalyst colleague, in the 2000s, Catalyst did come out with a study that showed a correlation between performance and having more than three women on a board. However, from an academic standpoint, the studies that have looked across all of the evidence — I believe you mentioned this in the hearing last week — have found, actually, no statistically significant relationship between women on boards and performance. I should say that that goes both ways. It’s not that it’s better, but it’s not that it’s worse.
Senator Tkachuk: It’s not any worse; I agree with you.
Ms. Kaplan: Therefore, it’s unclear that that produces an argument against. In fact, those numbers have often been translated to say that if you can’t be better than the status quo, then you don’t have a right to be included. My point of view is that, if there is no difference, there should be no excuse not to. But the academic evidence is consistent with the point that there isn’t financial gain. Maybe very small on accounting performance in terms of revenues or profits, but not in terms of market performance.
Senator Tkachuk: I want you to know that I agree with you, and I’d like to see targets that are not in this bill. I’d like to see targets for more gender equality but also find a way to get more diverse boards. It’s a difficult, difficult task. I heard the minister saying what he was saying, and I’m reading other stuff that doesn’t say that, and I’m thinking that’s not a good argument to use. Why not just come up front and say what you want?
Senator Wallin: As my colleagues have said, “comply or explain” has different outcomes in different sectors, in different countries and in different cultures. Again, I do think the context is important.
If we got this review within five years, if you add the supplemental reporting and you are asking companies to now pull it out and put it there and, in a sense, highlight it, aren’t you doing through the back door what you can’t do through the front door, which is to impose quotas or targets? I’ll use the word “targets.”
Ms. Kaplan: I just want to refer back to Minister Bains’ language last week in the hearing in which he said that the whole mechanism behind “comply or explain” is to get firms to compare with each other and compete. Then, he said that the other mechanism is not just competition amongst firms but shareholder pressure or social pressure. I don’t understand how you can do that. Take, for example, Air Canada, which actually is a company that has set its own targets. It has a very clear statement. It’s on page 37 of a 103-page proxy statement. The average citizen, the average shareholder, the average person is not going to read through hundreds and hundreds of pages to get those numbers.
Senator Wallin: But, if you look at a board of directors and there are seven guys and three women, you know what the percentage is.
Ms. Kaplan: Right, but even just looking at the board of directors, I own shares in many companies and I have to vote for boards of directors. I actually Google each name to figure out if it’s a man or a woman or a person of colour because that matters to my voting. If that information were actually made directly available, because not everyone is going to do that amount of research — if we buy Minister Bains’s argument about what the mechanisms are, then we need to allow the mechanisms to work. To allow the mechanisms to work, you need to have that transparency.
Senator Wallin: On the point you have just made, because I think we were talking about this, the minister said he wasn’t trying to focus on gender or check boxes beside minority groups of all different kinds. He wanted to circumvent that. You gave Canada credit for leadership in considering other forms of diversity. When he says things like thoughts, ideas, approaches, perspectives, doesn’t that allow you to bring in minority groups without putting check marks beside it and saying, “We need two of these and one of these,” which seems to me not what the objective is from anybody’s approach.
Ms. Kaplan: Well, I would say that the problem with saying “diversity of ideas” and those kinds of things is that that leads people to say — I heard the head of diversity at Google say the other day, “We could have diversity in a room full of 12 White men.” For sure, it could be that one is a marketing person and one is an engineer, so you have diversity. What we have observed in the United States is that, when you are allowed to set your own definition or to define it in that way, then people can claim that they have achieved diversity without achieving representation of exactly the people who are contemplated to be represented by this bill.
Senator Wallin: Do you think that, if you have, on a board of directors, 12 aging White guys and nobody else, that you’re fooling anybody, even though one may come from marketing and one may come from sales, that you’ve accomplished diversity? I don’t think people are that naïve, right?
Ms. Kaplan: I wish people weren’t that naïve, but the evidence is against you on that one. The evidence is, in the United States, more than half of the companies asked by the SEC to report use these broader definitions, and then they use that as their justification for why they do not have diversity on their boards. While, in principle, I agree that we couldn’t imagine, us sitting here, that that would represent diversity, it is being used as an excuse in organizations. That’s why I think that having organizations set targets makes it meaningful. The number one reason that organizations, both in the U.S. and Canada, give for not having diversity is, “We have a meritocracy. Therefore, we appoint the best people.” What people haven’t understood is how that meritocracy is an incredibly gendered process. I can say more about that if you’re interested.
Senator Marwah: This is addressed to Ms. Mac Isaac-Butler and Ms. Kaplan. There is very little in your comments that one can argue about, so I think I agree with virtually everything that you said. But both of you are quoting very macro numbers in your analysis, like your 14 per cent. They apply to all companies in Canada. Has any analysis been done that really tries to break this problem up by sector? I think you mentioned the FIs. The FIs clearly dealt with the issue, but Canada is a resource country. If you look at the resource-based companies, their performance, I will guarantee, is substantially lower than the average. We deal with the macro number of things, but, if you break it down into sectors, you will find the numbers radically different between sectors.
Secondly, if you break the analysis between large-cap, medium-cap and small-cap, there again the numbers are dramatically different. Yet, there has never been any analysis or any recommendations directed toward where some of the problems are and suggesting solutions that cater to these problems. It all seems to be one size fits all, and there has never been an attempt to say, “Okay, if the problem is the resource sector and that is mid-cap, how are we going to solve that problem. I don’t think we can just say, “We have to give you a 30 per cent target, and you have to go get it.” Surely there must be other ways to try to deal with these unique problems. That is Canada. As Senator Wetston said, you have to make it country specific. This is Canada. If a small business or small-cap company is based up in northern B.C, you’re not going to find many minorities there. Trying to get minorities there is not going to work. You can’t just have one size fits all. I’ve never seen any quality analysis done that is sector specific or specific to large-cap, mid or small-cap.
Ms. Kaplan: So a couple of things: One, that is absolutely true. There is some research that came out of TD that did look at differences across sectors and found that, where they were identifying some performance benefits of having women on boards, it was in precisely those sectors, like resource sectors, that have not had as much representation in the past. So I think that there are differences.
Also, even the CSA report itself says when we look at the percentage of members of boards that are women, it is much higher for the large-cap companies. It’s 24 per cent for companies over $10 billion and 20 per cent for companies over $1 billion. So I agree with you there are differences in the economy.
But it’s unclear to me why a mid-cap company that’s based in a location that doesn’t have very many visible minorities might not want a director who comes from some other part of Canada. In France, when they started putting in the quotas, people were saying, “We might even have to look outside of France to find new members of boards.” In this global economy, it doesn’t actually seem completely crazy to me to think that you might look abroad.
While I agree with you that there are some specifics to the companies, I think one of the problems that we’ve had in making progress is that people have not thought creatively about who might qualify as a director on a company, and it could be a much broader pool of people than just, “Oh, I’m going to look at my two neighbours and I didn’t find any minorities, so I guess I can’t have minorities on my board.”
Senator Marwah: I’m suggesting it would help if some of your work identified or tried to cater to solutions that deal with some of these unique problems, whether it’s resource sector or remote sectors. You cannot compare Canada to France. Look at the geography. There is a matter of cost. Flying someone from Toronto to B.C. is not as easy as flying from Cologne to Paris. It’s a bit different. Those are some of the unique problems that nobody has tried to tackle and say, “Hey, we have to come up with other unique solutions to deal with this issue.” It seems to be one size fits all. I want 30 per cent. That’s it.
Ms. Kaplan: I agree. That’s one why one of the reasons I said if we’re going to go with the current approach to Bill C-25, which is not a quota, is that companies could set their own targets. It could be that in some companies that have no women on their boards, you don’t set the 50 per cent target the first year, whereas with some of these financial institutions that have done a much better job, you would contemplate a much higher target. That might be a way that the bill, even if you set targets, would still accommodate the differences that you’re describing.
Senator Downe: Thank you, Mr. Allen, for your presentation. I enjoyed it very much. It’s simply shocking that it’s easier to get a library card and it’s more transparent information you have to disclose than beneficial ownership information.
Given what’s going on in other areas, and the public’s awareness of this, as you indicated in your presentation, has been highlighted by the recent leaks of Paradise Papers and Panama Papers and the ongoing concern about the ability of the Canadian government to track, particularly tax evasion, the lack of information in this area is significant in the extreme, in my opinion.
The other problem, of course, is the inactivity of the Government of Canada. We saw recent concerns about the Canada Revenue Agency. The Auditor General, quite frankly, caught them misleading Canadians on their call centres, where they indicated 90 per cent of the calls were answered in a set time, and the Auditor General found out they were doing that by hanging up on 27 or 29 million of them or diverting them to an automatic phone system. The real rate was 34 per cent. I would argue intentional misleading of Canadians.
Perhaps even more serious are the concerns we’ve heard all recently about diabetics and the benefits they used to receive. The department and the government was publicly saying there’s no change in policy. Technically correct, but then we find a leaked memo that that is not actually true and that the government had changed its interpretation and 80 to 90 per cent are being denied.
All of that leads to a concern that the government is not being particularly active about any of this. Given what other countries are doing on beneficial ownership, what is your view of why Canadians and the Canadian government are so slow in correcting this oversight?
Mr. Allen: I’ll ask Mr. Meunier to jump in as well, because I know he has views, but to be honest with you, I don’t know. It shocks me, as a former civil servant who had my taxes deducted straight from my paycheque and who has no deductions, et cetera, that people who can pay accountants or lawyers and who can make millions of dollars — because you don’t use a tax haven if you’re making $65,000 a year. It shocks me that people are taking advantage of these tax havens, not paying their fair share, allowing the middle class to pay for health, education and infrastructure in this country, when very, very wealthy people who set up these corporations — sometimes legitimately, but sometimes not — choose to use the Cayman Islands or the British Virgin Islands to squirrel away their money and avoid paying tax or very low tax.
I can only say that I know the Prime Minister has spoken up recently about the issue, about the importance of trying to retrieve some of this money, and I think he’s aware of the feeling of the middle class that, to some extent, they’re being taken. Why should the burden fall on them when it’s not falling on people who are much wealthier? We’ve seen what’s happened in the United States and in France, where people have become disillusioned —
The Chair: If I may, I’d like you to focus on answering the question, please.
Mr. Allen: I was just going to say that I think we’ve seen populism rise in Canada, in other countries, and we may well see it rise here, where people have kind of had enough and would like to see changes.
Denis Meunier, Member, Beneficial Ownership Working Group, Transparency International Canada: Very briefly, your question was why so slow, and I think there’s a question of political will. The issue of beneficial ownership has been on the international scene for a number of years with the FATF being an international body requiring countries to do so. Canada is largely non-compliant with those particular rules. It’s up to us in Canada, legislators, to introduce the kind of legislation that would facilitate identifying beneficial owners so that they can’t hide behind a series of shell companies and whatever. Now, not all companies are like this, but there’s a very high risk. Corporations are being used to launder money, hide taxes and to hide the corrupt kleptocrats from around the world. I think it’s a question of political will.
Senator Downe: The inactivity is shocking. Consider the government’s response last week to the autism concern I raised about people who used to receive the benefit and are now being denied. The government took some pride in announcing that they struck a committee. Nobody outside Ottawa would consider that progress. What people would want is the system to be restored so the people who were receiving the credit for years before would continue to get it now. This strikes me as another delay. I asked the minister last week. He informed us, this committee, that the Finance Department is working on it. Well, we could be years away.
There was level of the concern we saw when the Senate, under the leadership of Senator Andreychuk, moved the Magnitsky bill and then it was passed by the House of Commons as well. We found out that millions of dollars from that Russian crime was laundered through Canada. Particularly, we think, in the Toronto housing market, but we don’t know. This is another indication of the lack of transparency in this country.
My question would be: Why would we not simply amend this bill now to correct this as opposed to waiting years for the government that shows, as you indicate, a lack of political will?
Mr. Meunier: I can’t answer that question. That’s really up to you. But I know that the private sector — I can name the Canadian Life and Health Insurance Association — presented a brief back in 2014 specifically demanding this to the department that was sponsoring the public consultation. Same thing with the Global Organization of Parliamentarians Against Corruption. They’ve sent a letter specifically asking for a public registration of beneficial ownership.
With the private sector that we talked to — banks — we can facilitate, save money and make their jobs more efficient because, under the current legislation, they have to meet certain beneficial ownership requirements. When they can’t, they have to make reasonable efforts to do so. When they can’t, they default to simply identifying the most senior manager.
When we compare this to what’s happening in Europe next week, they will be making a decision not on a question of whether there’s going to be a registry of beneficial ownership available to police, CRA and competent authorities; they’re talking about going much further. They’re talking about making it publicly available, like we’re recommending, and also looking further to other kinds of legal arrangements. Are we slow? Are we behind? My answer is yes.
Senator Downe: While the Europeans are making decisions next week, we’re convening meetings. I’ll leave it at that.
Senator Tannas: Before I get to my question, I want to add to Senator Marwah’s point. I follow the Watson Wyatt report that talks about board trends, and the last report I saw said that 40 per cent of new directors at TSX 100 companies are women. This was not last year but the year before. I presume that trend is roughly continuing.
I think when you talk about the large-cap community within Canada, we’re on our way. The mid-cap, I would suggest, will follow. Certainly institutional investors are quite proactive about this now, and they grade companies that do not have a diversity policy down, and that forms part of their proxy recommendation. So mid-caps that have institutional shareholders and so on, I think they will be forced along and “comply or explain” will help that.
But small- and micro-cap companies are an entirely different set. It goes to Senator Tkachuk’s question about who is investing. I can guarantee you that the vast majority of directors on small- and micro-cap companies are also enormous investors in those companies. That’s just the way it is. So, to me, that is a different issue if we agree to the point that females will become a significant part of small- and micro-cap investor market will imply that they will be further down their career path than they are right now in terms of large numbers.
I wonder if you’ve given any thought to how we could pull the large numbers of people that are mid-career, women that are mid-career. Instead of having to wait until they get to the end, if there were some programs, banks, accounting firms, where they could provide either flexibility or some kind of ability that would change their policies with respect to participation in public companies, even provide indemnities or something, that would allow that group to come into the director workforce early.
I’m on the board of two TSX companies. They’re both all men. I’m on the selection committee of those, and we have a supply problem. There is a supply problem. I don’t care what anybody says. We’ve been through this. We need a larger supply of women with relevant experience. We can see them; we just can’t get at them. I wonder if you’ve given any thought to that, or, if not, what’s your reaction?
Ms. Mac Isaac-Butler: At Catalyst, we’re investing in all sorts. We have a program called Women on Board, which I lead up. It pairs women who are at mid-level, corporate-ready boards with CEOs or board chairs of corporate organizations in a mentorship sponsorship program, a two-year program, to aim at giving these women candidates the tools they need to make that transition into those mid-cap or corporate boards. That’s one way that we’re working with these women to set them up for success in joining mid-cap.
Predominantly, we do focus on corporate, but we’re seeing that the women coming through the program are more suited for those mid-cap, smaller-cap companies, so we’ll be putting our focus more into that in the future to round them out to transition.
Ms. Kaplan: The Institute for Corporate Directors has a thousand board qualified people, and you may not want that person on your TSX board, but they are board qualified for a number of these other kinds of positions. I agree with you. I’m 100 per cent in agreement that we should be very focused on getting mid-career women board ready, absolutely. But I think we have more ready than maybe some people would believe.
Senator Marwah: Just to follow on Senator Tannas’s question, I agree with you. There’s a long list. There are many lists around. But in many companies that are the feeder pools, like the banks — and I know that very well — we don’t allow mid-career women to join a board. There’s another piece where you have to target a specific problem with specific solutions rather than broad, general 30 or 35 per cent one size fits all. That should be a recommendation. We need to target the problems much differently for different sectors and for different problems, rather than just coming up with the same 30 per cent. We need more. That’s not doing enough, because it is different. That’s my point. We don’t allow mid-career women, period. You have to be an executive before you’re allowed join a board, and even then with board approval. That will cut the supply right there. Telecoms and oil companies are the same. They’re all the same.
Ms. Kaplan: If you were to ask either of us what is the broad set of ways that we could address this challenge of women in leadership in corporations — and we’ve been focused on board but this bill also contemplates women in executive leadership — I think there’s a large suite of activities, including this kind of mentorship and training and changes in rules and regulations. I think we confined our remarks to begin with around the constraints, around the bill that is proposed, and thinking about ways that we can, within the constraints of that bill, do something. It would be fantastic if there were other mechanisms put in place that would contemplate these kinds of issues that you’re exactly describing.
Senator Marwah: I highly encourage you to do that.
Ms. Kaplan: I would encourage you to do it.
Senator Massicotte: Thank you for being with us today. I must admit, I’ve been here now 14 years, and about 10 years ago we had this same discussion about progress and diversity and so on. I must admit that over the years, I lost confidence in the natural process that things will occur if we let it go. If you look at results we’ve achieved, it’s disappointing to see where we are.
I’m all in favour of something light-handed, nudging the process to get where we want to go. I share some of your suggestions. But it’s got to be flexible enough. Not only is our country different, but every corporation is different. You have to create a process or a solution where you give everybody that chance to get there in their own ways. Yesterday, I read a big report by industry regarding the percentage on boards. There’s quite a bit of variation. You have to allow that flexibility.
Ms. Kaplan, you made reference to management. From a country point of view, the number is much greater when you talk about female, diversity representation among management, among executives. If you look at those numbers, that hasn’t moved very much in the last several years. I know the proposed act is very much dealing with board levels. What should we do there? That is a more significant issue, a more social issue. The studies are clear. There is a perception we often hire board members based upon our own perception of ourselves, White men employ White men. What do we do for executive positions? How do we nudge that along?
Ms. Mac Isaac-Butler: Sponsorship. Mentorship and sponsorship are key. You said the majority of those executive-level positions are men, and men tend to sponsor and women tend to mentor. If we have men at 85 per cent of these top-level companies, then men will sponsor men and women will mentor women. We need to turn the tables on that and get more women into these executive-level roles to get more sponsorship for these women.
Ms. Kaplan: I would say that that’s a very individualistic focus on what a person would do to mentor another person. I think there are also plenty of things, as you mentioned, that we can nudge along. Behavioural economics would suggest there are all sorts of structural changes that you can make, such as changing job descriptions to include all sorts of criteria that we have stereotypically thought of as female, like being able to multitask and collaborate. By the way, any leader should be able to do that, but we tend not to include those kinds of descriptions in job descriptions. We use words like “excellence,” which are also highly gendered. I think there are all sorts of things you can do, beyond that individual sponsorship, that include changing your job descriptions and changing how you do your promotions. There are companies now that say they will not actually authorize a promotion unless the slate is diverse, whether it’s an internal slate or external slate.
I think these are things that are well beyond what you could put into a bill, but these are the kinds of things that Catalyst is certainly recommending. The kinds of things that we, as academic researchers, are both researching and recommending are all of those structural changes that I think would do more than just putting the onus on individuals to do sponsoring out of the goodness of their heart.
Senator Massicotte: Let me ask Mr. Allen a question. We’ve dealt with this issue about illegal funding and money getting funnelled. You talk a lot about the real estate markets in Toronto and Vancouver. People are finding ways to funnel illegal funds into those, and I wouldn’t mind going into a little bit of detail. How do we get there? If the money is in the banking system, it’s already been whitewashed and it’s too late. I presume that if you’re using real estate to hide illicit funds, that means you’re introducing cash. As you know, real estate brokers now have an obligation to proceed like accounting firms. The only profession left that is not stringent and still has an opening is the legal profession. How does one get there? You say, “Look at the illegal funds in the real estate market.” Give me an example of how someone can get there and go into the real estate broker with $600,000 in cash bills. I just don’t see it.
Mr. Allen: We’ve heard that they think 10 per cent of purchases of real estate in Vancouver and Toronto are foreign. I think those numbers are incredibly low, if you speak to real estate agents right now.
Senator Massicotte: So what?
Mr. Allen: How do they do it? They have children. You know that in Vancouver, there are very wealthy children who are living in the apartments that their parents have purchased, and they have money. Money can be sent to their children, their children can then put it in a bank and they can then buy, as we know, 10 condominiums on the corner of a luxury building.
Senator Massicotte: I’m trying to get to the point. Once it’s in the banking system, internationally, it’s too late. You have to take illicit funds and somehow get them into the banking system, and they say they’re using real estate to get there. Are you saying a 12-year-old child goes up to the bank and deposits $600,000 of cash to buy the condo?
Mr. Allen: No. That’s right, but the father has a shell corporation, and the director of the shell corporation is the person that goes ahead and makes the purchase or purchases on behalf of the beneficial owner, whom we don’t know. So we have a director of a shell corporation buying 10 or 15 apartments, and then the corporation goes to —
Senator Massicotte: I have no problem with that, but I’m saying you’re obviously assuming that the cash — the payment for that purchase — is already in the banking system.
Mr. Allen: It could be.
Senator Massicotte: If that’s the case, it’s too late. He can buy anything he wants. I’m trying to figure out how the scheme works.
Mr. Meunier: In money laundering, the easy part — the dumb part — is bringing cash to a bank. The more sophisticated money launderers want to create the greatest amount of distance between them and the proceeds of crime. Once it’s in the bank, regardless, it’s not too late, because money laundering continues with layering, buying things, hiding things, buying investments —
Senator Massicotte: Once it’s in the bank —
Mr. Meunier: — and integrating and buying a real business where you generate more funds.
Senator Massicotte: You were previously a FINTRAC person, right?
Mr. Meunier: Yes.
Senator Massicotte: Once it’s in the banking system and presumably exceeds the $10,000 limit —
Mr. Meunier: The banks have a responsibility to identify suspicious transactions, so this information, as well as wire transfers over $10,000, is reported to FINTRAC.
Senator Massicotte: How does that three-year-old child get $600,000 worth of cash?
Mr. Meunier: It comes from different sources. Particularly, the main route out of a country — and I’ll pick a country that has currency controls — is that they basically wire money through many relatives. They wire it in.
Senator Massicotte: It’s my understanding, though, that once it’s in the banking system and once you can wire money, forget it.
Mr. Allen: Why do you say forget it? If you knew who the beneficial owner of the corporation was, then you could go to that beneficial owner and start asking them questions about where this money came from.
Senator Massicotte: FINTRAC has that authority today. If you look at where it’s converted into drug money or whatever, once it’s converted, they have that authority today. If they’re going to lie to you about the source of the funds, they will lie to you about beneficial ownership.
Mr. Allen: One of the points we’re trying to make is that without a public registry, you’re putting a huge amount of responsibility on life insurance companies, banks and underfunded law enforcement. By themselves, they simply cannot attack this problem. Without the Paradise Papers, the Panama Papers and the investigative journalism that was done, nobody would have known what was going on. One law firm, 500 banks and 16,000 corporations: The CRA was not going to be able to find out by itself. What you need is a public registry that will tell you that there’s a beneficial owner who seems to have —
Senator Massicotte: I buy all that. I’m just trying to understand. I’m sorry, chair. I couldn’t get any comfort, but I’ll let it go.
The Chair: Do you have it yet, Senator Massicotte?
Senator Massicotte: That’s it.
The Chair: Thank you very much.
Senator Omidvar: Thank you all for being here.
My question is to Ms. Kaplan, and it’s in two parts. I want to return to diversity, targets and definitions. I’m very sensitive to what Senator Marwah has said. We can’t have a one-size-fits-all approach in a country that’s big and diverse in many ways.
I have in front of me a report, which I’m sure you’re familiar with, from the Canadian Board Diversity Council that actually determined that roughly half — 47 per cent — of FP 500 boards have set voluntary targets. This includes the mining and oil and gas sectors, at 15 per cent, and finance and insurance is always up there, at 63 per cent.
My question to you is this: If half of Fortune 500 companies can set themselves voluntary targets and measure their performance against them, should a voluntary target be included in the legislation?
Ms. Kaplan: By voluntary targets, do you mean a provision where each firm offers up their own target? Yes, that is one of my suggestions. I believe that instead of giving firms the option of setting a target, I think they should set a target. I’m not saying what the target should be, but I’m saying each firm should set a target.
Senator Omidvar: I know you tried to answer this earlier, but I want to dig a little deeper. How would you go beyond gender? Or, actually, let’s stay with gender. How would we measure the intersectionality of gender and race, gender and ability and gender and indigenous status, and then how would we move towards other aspects of diversity as they are currently defined in the Employment Equity Act?
Ms. Kaplan: In terms of targets, you mean?
Senator Omidvar: Yes.
Ms. Kaplan: I don’t have a good answer. As you said, I tried before and clearly didn’t satisfy you, and I’m going to fail to satisfy you again here in the sense that we have no best practice to which to refer you in terms of what any other country has done on diversity targets.
We do have best practice when it comes to gender targets, and I think part of the reason we have that is because women, as I said before, represent half the population. It is much harder, even from a theoretical standpoint, to figure out exactly how to set diversity targets on the other forms of diversity contemplated by the Employment Equity Act simply because the numbers are much smaller. Once you get into the law of small numbers, it’s much harder to contemplate.
You could, however, set some type of target that would be contemplated over all of the other categories. This would be our goal. It could be through the intersection. You could have a woman of colour and that would hit both targets at once.
We don’t have a good answer as to how to do that because there aren’t previous examples of how to do that. All of my interventions were how to put more teeth into what is mainly a voluntary program, and whatever we can contemplate to put more teeth in would be important.
Senator Omidvar: Thank you. I too am looking for more teeth, if I may use that expression, but I’m not sure how we do this.
Let me ask you about definitions. You proposed that employment equity definitions be used because they have served us well for the last 20 years. Would you prefer to see these definitions in the legislation, or would you be satisfied with having them in regulations?
Ms. Kaplan: The way Minister Bains spoke about it in the session last week was that the Employment Equity Act would be referred to as guidance. I don’t think guidance is enough. It has to be that these are the categories that matter. I don’t know if I have an opinion about where it shows up, whether in the act itself or in the regulations. Wherever it shows up, it has to be more than simply, “This is guidance for you. It’s one possible definition.” I think we need to say, “These are the definitions that matter to us.”
Senator Omidvar: In other words, in legislation. Thank you.
Senator Dagenais: This is my first time on this committee. I ask for your indulgence. Mr. Allen, I listened carefully to your presentation, and what drew my attention was the famous tax evasion. You and I both understand that, given the current climate, the minister responsible for the Canada Revenue Agency has trouble making us believe that she can fight effectively against this scourge. I think this bill could give us an opportunity to help her. Could you suggest two or three measures we could add to the bill which could help the CRA to act more quickly and more effectively against tax evasion? What could we add to the bill to reach that objective?
Mr. Allen: As we said, the most important thing you could do to help them would be to have a public registry of beneficial owners, and that would enable the CRA and other authorities to be able to know quickly and not to have to begin to fish through a whole series of shell companies to find out who really is benefiting or not from a certain sense of activities. Having a registry would, I think, help. I know that they provided a billion new dollars and there have been cutbacks, so that’s positive. Less of a focus on small tax issues and much more of a focus on some of the more significant problems would help. Don’t spend 5,000 hours or 3,000 hours on a small issue if you really are concerned about this problem and setting some standards.
But Mr. Meunier was actually in the agency.
Mr. Meunier: Thank you for your question, senator. I can’t really speak on behalf of the agency, but I agree with what my colleague said, which is that Bill C-25 concerns Canadian companies only. We might be able to provide an impetus by including in the bill the obligation of creating a registry of ultimate beneficiaries, those who are really behind the companies. In my opinion, the risk mainly concerns private corporations.
As for other recommendations, I would say that we at least have to ensure that the federal registrar require not only verification, but a verification of the identity of the real beneficiaries. The information also has to be updated periodically so that we can ensure that we are dealing with the ultimate beneficiary, and this information has to be made accessible to the agency, the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC, to police forces and to declaring entities — here I mean the financial institutions — and to the public. In my opinion, those are two or three recommendations that could easily help our country to better manage tax evasion and money laundering.
Senator Dagenais: My next question is for Ms. Kaplan. There has been much talk about gender equity on boards of directors. Could you clarify the situation? I think there are a lot of women today who make investments through their brokers. Have you ever done research on shareholders’ meetings that indicate what proportion of women attend those meetings?
Ms. Kaplan: I am sorry that I cannot answer in French.
I do not know of any research on the proportion of men and women who are actually going to shareholder meetings, for example, and things like that. I’m not aware of any research at all about that. But I do know that anyone who is a shareholder is asked at least to vote via proxy, and I don’t know of any research that would suggest that there is any difference in responsiveness to that.
Senator Unger: I have very short comments and questions.
Ms. Kaplan and Ms. Mac Isaac-Butler, I have been listening to you, and, as a woman, I’m not trying to hold myself out as an example, but I did start a small business, which I ran for 25 years. I have also served on many boards, and honestly, I primarily worked with men. For the life of me, I cannot figure out why today’s women, who are a lot more aggressive than I ever was, are having trouble succeeding. I don’t understand that. As you can tell, I still get nervous when I talk here, and I shouldn’t because I’m among my colleagues, but I never had to push my way into any board position or any earlier job that I had. I don’t get today’s women, I guess. Would you comment?
Ms. Kaplan: Well, I don’t think it’s an issue of today’s women. The evidence would suggest it has been an issue for women throughout history and that things are certainly better today than they were two and three decades ago, although not nearly as much better than they should be. I don’t think the issue is today’s women. Congratulations on your successes. I think there are many women we could hold up as exceptions that prove the rule.
However, the evidence strongly suggests that the systems we have today — including our definitions of what excellent performance is in terms of the processes by which candidates for leadership roles or candidates for boards are identified in terms of the networks of executives that exist — are all right now leading to the exclusion of women in leadership roles.
While, of course, we’re making progress, because people talk about it a lot, we are not at the numbers that we should be, given the amount of attention that it has gotten. I think the very fact that “comply or explain” that has been contemplated in place in OSC has not made very much progress is exactly testimony to the fact that the system itself is designed to not make progress unless it’s more than nudged. I want to go back to the language that was used before. I think we need more than a nudge; we might need a shock to the system.
I would not put the blame on women today. I teach these women. There is no problem with the women.
Senator Unger: Can you give me an idea of why you think there is this rejection, if you will? Rejection is a strong word, but what is the reason?
Ms. Kaplan: Well, there isn’t a reason. There is a very complicated, complex system in place that has been built up over time. There will not be one reason.
As an example, we have a term in academia called the ideal worker or the ideal executive. Who do we think of as the ideal leader? This is men and women alike; this is not that men are sexist and women aren’t. We all look at leaders and leadership characteristics, and we often don’t see that a woman or a person of colour fits into our idea of what a leader looks like. It’s something we have grown up with and is programmed into how we think about things.
We have criteria, for example, for boards of directors that say we privilege people who have had profit and loss responsibility or have been CEOs. We know there are very few female CEOs. If one of your criteria is you must have been a CEO, it will be difficult to find women.
Why are those the criteria? Why wouldn’t we have different criteria? In fact, one of my colleagues at the Rotman School of Management is doing research that shows that for boards that have expanded their definitions to look at a broader set of people, they are actually getting more board effectiveness. Now they have someone who is the head of human resources, another person who is the head of marketing and someone who is the head of government relations, but that means defining leadership differently.
That is one of the processes behind it, but we could be here for a really long time for me to answer that question.
Senator Unger: Mr. Allen, I thank you for your presentation. I believe this is a very large problem and I would like to see legislation to have this changed. I believe that Canada is as fast asleep on the issue that you raise as we are on cybercrime and cybersecurity. Would you comment on the latter?
Mr. Allen: I’m no expert on cybercrime or cybersecurity, so it would be very difficult for me to comment on that. It’s not really within the transparencies bailiwick.
The Chair: Senator Wetston, you indicated you had a note that might be of interest to the committee.
Senator Wetston: As I indicated, I think it’s an important area and needs to be studied. I’m not persuaded that it’s a miscellaneous amendment. I think it needs studied because organized crime, money laundering and securities fraud — international and domestic — cannot be addressed by simply having a registry. That’s my only point. It is very complicated, as we all know. Criminals are very smart. We all understand that. If we have to avoid issues of tax avoidance version tax evasion, what are we looking at? I agree with Senator Downe. He spent a lot of time on this issue. My point was this: I believe, and I think I’m correct, that the Minister of Finance is next week hosting meetings with the provinces and territories to address the beneficial ownership issue. From my perspective, that may not be enough, but it’s important start to addressing this issue. I wanted to bring that to your attention. Are you aware of that?
Mr. Allen: We are aware of it and we are happy it is taking place. I couldn’t agree more that the issues we’ve raised are very complex, but I would say that including a public registry of beneficial ownership is one step, and it’s not a complex step. It’s something that has been done before.
While we’re not going to solve all these problems today, I would simply hope that we could begin to make some real progress and not spend too much time studying it. This one relatively narrow aspect doesn’t necessarily need that much studying, I don’t think, based on what governments in Europe and elsewhere are doing. We do have to take the federal-provincial issue into account, but I think there should be great self-interest to move ahead.
Senator Tkachuk: I’m a little bit like Senator Massicotte in terms of understanding exactly how cash would get into the system, but I’m also confused on beneficial ownership. Say there is a federal private corporation in Canada and you have three, four or five owners, and they could be corporations or people. Could you take me through the trail as to how a beneficial owner would hide? What happens? The corporation has to file income tax, and it has to show what dividends and salaries it pays. Take me to the next step. How does a corporation end up in the Cayman Islands? Oftentimes, the Cayman Islands investment is different from the beneficial ownership here in Canada. Could you help me out with that?
Mr. Allen: So you have a corporation in Canada. You have set it up. Now remember, the beneficial owners don’t appear anywhere. You basically have a secretary in a law firm who is the only person who appears on the registry. This company in Canada begins receiving invoices from a company in the Cayman Islands for consulting, financial services or a variety of things, and it doesn’t have to be in the Cayman Islands. It could be in Liechtenstein or Luxembourg or anywhere. So the company in Canada begins to pay these invoices and — my oh my — the profits of this company go down very significantly. In fact, they can go down to almost zero, of course, because all these false invoices, in most cases, are being paid there. This is just one small example.
So the company in Canada has no tax to pay and it’s shuffled its money to the Cayman Islands where it pays 1.2 per cent tax and where it is almost impossible to get information, because it’s a tax haven and secrecy haven and they don’t very easily release any information about the companies there.
But it’s not just one company in the Cayman Islands. Then, you set up three or four companies. The reality is all of this money is actually being managed out of the U.K. The Cayman Islands is a post box, and it gets its 1.2 per cent tax and a registry fee for the corporations. The real activity, however, is probably happening in London, where the money that was in the bank, which Senator Massicotte was talking about, is now being managed. That’s where the financial services benefits really end up. The Cayman Islands, for the most part, are simply post boxes or places through which money flows. That’s just one example.
Mr. Meunier: The whole point is to try and distance yourself as much as possible. You simply do like the Russian dolls and incorporate and have more of the corporations held by another corporation and by another corporation, and that itself becomes a very difficult task because you would switch jurisdictions.
If you are an investigator, as soon as you make a request, let’s say, to access their records, I can tell you within five minutes that phone call will be made because the beneficial owner is not necessarily the person listed on the company registry. That money will be moved around. Obviously, there are many legitimate companies, but we are talking about the ones that are nefariously established.
The Chair: Your supplementary question has caused great interest, so Senator Massicotte has a further comment.
Senator Tkachuk: I’m still confused, but Senator Massicotte may clarify things for me.
Senator Massicotte: Let’s talk about your example. We are talking generalities. In your case, basically it’s your transfer pricing. There is actually a false pricing of goods and services provided to that Canadian company. But in that case, Senator Downe will be very glad to hear, obviously if they got away with it, it’s because Revenue Canada did not do their job. Because the onus is upon a taxpayer to prove it’s a reverse negative. Therefore, they didn’t do their job to say that when the new invoices came in to reduce your taxable income, it’s a false invoice. The real solution is that Revenue Canada should be doing their job when they do the audit, and the company should be obligated to prove the transfer price was fair. The onus is upon them.
Mr. Meunier: To help them, all they need is a tool, and the tool is the beneficial ownership registry made available at least to competent authorities, but —
Senator Massicotte: In other words, if Revenue Canada did their job, there would not be a problem.
Mr. Meunier: But how did they discover that?
Senator Massicotte: They asked questions and the taxpayer proved they did receive services. I know it’s an issue of argument, but it’s not as if they have no tools or ability to get there.
Mr. Allen: You just saw the Minister of National Revenue saying there is $25 billion in it. I’m not saying that’s even tax havens. That could be unpaid taxes and interest, et cetera. But we are putting enormous responsibility on the CRA when they simply don’t have the tools and will never have the tools because these crooks are so —
Senator Massicotte: The issue we are talking about has nothing to do with who the owner is. The issue is that it is done by many companies and the argument is legitimate but is probably exaggerated. You are using the issue of identification, but that is a practice used by many reputable companies, and often with legitimate reasons where actual goods or services were delivered.
Mr. Allen: But you want to be able to confirm legitimacy. In cases where it is legitimate, that’s fine.
Senator Massicotte: That’s what we have auditors for.
The Chair: I will interject; I think that point has been made.
Senator Tkachuk: I want to follow up on my supplementary. You said you were a civil servant; I was in small business. There are PST auditors and GST auditors and income tax auditors. I had visits from all of them, and I was a small little company in Saskatchewan. I think almost all businessmen I know have had a visit from at least one of the three. I don’t buy the fact that there are all these companies out there doing all these things that no one is finding out about. They have to file GST, PST and have to file why they are not charging GST.
Mr. Allen: You have highlighted the problem, senator. The CRA is spending its time going after people like you and can because they know where you are. They know who the beneficial owner is. But they don’t have the time or the manpower to be able to go after the very sophisticated operations that people pay very expensive lawyers and very expensive accountants to design for them.
Senator Tkachuk: I should have filed my income tax through a law firm, and then I would have had nobody visit me?
Senator Downe: Since I was mentioned in the previous conversation, let me jump in. The CRA — you are correct — does an outstanding job. I’ve always said this in my research over the last eight or nine years on domestic tax evasion. For people like Senator Tkachuck and others who are following the rules and disclosing the information to the CRA, it is easy to follow through and check. Senator Massicotte and others should spend a few minutes looking at the Paradise Papers and the Panama Papers where you see public disclosure on how many Canadians have decided for some reason to have banking in Panama, Bermuda, Liechtenstein or other countries. While we all know it’s not illegal to have an account overseas, it is, however, illegal not to declare the proceeds from that. We have found in case after case that these people have corporations hidden because the beneficial ownership is not known by the CRA. I am critical of CRA for, I think, very good reasons, but in this case, the lack of beneficial ownership is a hindrance to what the CRA has to do, which is collect the taxes owing.
The Conference Board of Canada, in February of this year — and we are all know they are a well-respected think tank — put out a report where they estimate the tax gap is up to $47 billion, which is a significant amount of money, and a large portion of that is hidden outside the country.
Mr. Allen: Thank you very much. I will cite another statistic. In 2011, Statistics Canada found that 24 per cent of Canadian direct investment abroad went to the top 12 tax havens — $170 billion Canadian investment abroad. Is all of this money illegal? Absolutely not. Much of it could be legal. On the other hand, this is Canadian investment that is abroad that is being taxed — perhaps legally, perhaps not — at a very low rate, and is that money, as you suggested, known to Canadian authorities for taxation here? I doubt —
The Chair: If you wrap up on that point now, we have ventilated this.
Senator Marwah: I have a question for Mr. Allen as well. We can debate whether there is a problem of beneficial ownership. Clearly there is one, but we can debate the magnitude. My issue is one of timing. You suggest that we put through amendments as part of this bill to solve this one simple issue of registry, but there is no simple legislation. This is certainly not going to happen by the end of next week or January or February or March. You are talking about delaying the whole bill to April or May perhaps, if it’s agreed by that time and we get consensus, which is another question. Do you think we should delay the rest of this bill, which has many elements we’ve been waiting years to accomplish, including diversity, so we can try and get this and delay it to April or May?
Mr. Allen: To turn the question around, my worry is if you don’t do it now, when will you do it?
Senator Marwah: It is not a matter of us doing it. Why not go to the Department of Finance and say, “We have a real problem.” And have they said it’s not a problem? I understand from Senator Wetston he is meeting with provincial counterparts. Have you engaged with them? Have they said it’s not a problem and to go away?
Mr. Allen: No. I have engaged with them, and we have been told that there are federal-provincial obstacles and we are beginning to meet, but this is a problem that’s been around for a long time and it’s a problem that has been identified for a long time. We think there is a certain urgency to it. I leave it in legislators’ hand to know whether or not it can be dealt with within the time, but on the other hand, this is a corporations bill, and it’s not there simply to protect corporations; it’s there to balance the rights. There are many rights of corporations. They have great benefits from being incorporated.
Senator Marwah: Do you believe we should delay all the other aspects of the bill to incorporate this? That’s what you’re saying.
Mr. Allen: I certainly want —
Senator Marwah: That’s the net outcome of what you’re saying, so you believe it’s worth the price.
The Chair: The point has been made, and then you’d have a real problem on your hands, let me tell you.
Senator Omidvar: I want to revert back to my interest in the language in the bill, which talks about diversity but really expresses its focus on gender equity and trying to move the needle a bit, as best we can, without being overly prescriptive. But even when we use the employment equity definitions, there are concerns around other aspects of diversity. There are 14 grounds and the Canadian human rights requirements. In the Senate, a colleague pointed out very appropriately the need for linguistic diversity, especially in a country that is bilingual. How should we grapple with this notion of definitions that are about diversity, that are broader than gender, maybe even broader than employment equity?
Ms. Kaplan: I agree that the Employment Equity Act only has four categories and those four categories do not represent all the different forms of diversity that are out there. As you said, there are many others that are even defined in the Human Rights Act, and then we could think of even more. So there would be an argument potentially to say, as Minister Bains said, let’s leave the definition open and allow each business to approach it in the way they want.
My concern with having no definition is simply that we know what happens when there is no definition. When there is no definition, it means that people revert to such a broad definition of diversity that we make no progress on any of the protected categories of people.
I don’t have a specific prescription for you. I think this is a choice that you, as legislators, need to think about, this trade-off between accommodating a broader set of diversity that you might be concerned about versus offering some definitions that don’t allow corporations the out to say, “Well, it’s diversity because I have a marketer and anengineer.”
That’s the trade-off that you are contemplating when you set a definition. Because when you set a definition, if we just go with the Employment Equity Act, would you not have, for example, the LGBTQ community included? Many people would suggest that is a grave omission. I don’t want to make a specific recommendation to you. The Employment Equity Act is one that has served the country well, so it seems at least a baseline to start from. I simply want to say if you don’t define, the risk is that you will not move the needle.
Senator Omidvar: In other words, you think using the employment equity definitions is a good start?
Ms. Kaplan: It would be the minimum, yes, but I think having a definition is important.
The Chair: I want to thank the four witnesses very much. This has been an extremely stimulating and important conversation for us. Thank you for all your time.
There’s one in camera matter that I’d like to deal with. It will be very quick. There will be no interventions.
(The committee continued in camera.)