Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue No. 30 - Evidence - December 7, 2017

OTTAWA, Thursday, December 7, 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 at 10:30 a.m. to give consideration to the bill.

Senator Douglas Black (Chair) in the chair.


The Chair: Good morning and welcome, colleagues, invited guests and members of the general public who are following today’s proceedings of the Standing Senate Committee on Banking, Trade and Commerce either here in the room or listening via the web. My name is Doug Black and I have the privilege of chairing this committee.

On September 28, 2016, the Minister of Innovation, Science and Economic Development introduced 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 in the House of Commons. The bill, as amended and passed by the House of Commons, was read a second time 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, accompanied by his officials. Yesterday we heard from a number of organizations and representatives, as we will today, during our examination of this bill.

I am therefore pleased to welcome, from the Diversity Institute. Wendy Cukier, Founder and Director; from Hansell LLP, Frédéric Duguay, Partner, and Susan Kushneryk, Partner; and from the Institute of Corporate Directors, Matthew Fortier, Vice President, Policy.

Before getting under way, I will ask senators to introduce themselves, so you know who your inquisitors will be.


Senator Ringuette: Pierrette Ringuette from New Brunswick.


Senator Omidvar: Ratna Omidvar, Ontario.

Senator Wallin: Pamela Wallin, Saskatchewan.

Senator Unger: Betty Unger, Alberta.

Senator Tannas: Scott Tannas, Alberta.

Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.

The Chair: And we are ably assisted by the clerk and by our analyst from the Library of Parliament.

Without further ado, may we hear from you, Dr. Cukier.

Wendy Cukier, Founder and Director, Diversity Institute: Thank you very much, senators. I appreciate having the opportunity to speak to you. I understand everyone received my brief, so there are just a few points I want to make and then I’m happy to answer questions.

The Diversity Institute does research aimed at advancing inclusion. Today I’m actually not just representing the Diversity Institute but a number of other organizations that have signed in support of the brief, including groups like the Canadian Association of Black Lawyers, the Mosaic Institute, the Information and Communications Technology Council of Canada, the Toronto Region Immigrant Employment Council and so on — a number of groups that are concerned about diversity and inclusion issues.

I’ve worked on issues with respect to women in leadership roles for close to 30 years now, and there is no question more needs to be done. Our research shows that women remain under-represented in these elite roles as well on the boards. The good news, however, is that we are seeing some increase. In the last three years in both Toronto and Montreal, for example, the representation of women on boards of companies headquartered in Montreal increased by about 40 per cent and in Toronto by about 30 per cent.

When it comes to racialized minorities, however, the picture is much less rosy. In Toronto, a city where half of the population is racialized, racialized minorities account for under 7 per cent of leadership roles in the private sector. Similarly, if you look at the intersection between race and gender, you see White women outnumber racialized women 16 to 1 on corporate boards, even though they are half of the population.

Because of this and the work we’ve done in looking at indigenous people in leadership roles, people with disabilities and so on, we feel very strongly that this legislation has to treat the four employment equity categories as a minimum in its definition of diversity, so we are very pleased see the remarks of the minister in this regard.

In addition, we know that what gets measured gets done, so the reporting and the accountability requirements this legislation introduces are going to be critically important in whether we see the progress that all of us hope to see with respect to representation.

The third point that I think needs to be made is we hear very often that the problem is the pool. “We’d love to have women and we’d love to have racialized minorities, but there are none.” One of the things that our research revealed is that there are huge differences between companies in the same sector. Some, for example, have over 30 per cent women on boards and some have none. That is a really important data point because that tells you some organizations are intentional and put in place the processes to attract and retain women in leadership roles and others don’t, and you see a similar picture with respect to racialized minorities.

I know that there has been a lot of debate and discussion about these issues. I think there are different ways to get to the same objectives. Among the groups that I’ve spoken to, there are certainly some who feel that legislative changes are required to embed the definition of diversity in the legislation. There are others who would support the notion of putting it in the regulations. There are some who feel that we need hard quotas, and there are others who think that targets provide more flexibility. I’m happy to talk about some of those issues further, but I do think what is critically important is the intention of this legislation really does bring the Corporations Act into the 21st century, and in the 21st century diversity is more than just gender.

Thank you very much.

Susan Kushneryk, Partner, Hansell LLP: Thank you, senators, for inviting us to appear before you today. My name is Susan Kushneryk, and I’m a partner at Hansell LLP, and Frédéric Duguay is here with me, also a partner at Hansell.

Hansell LLP and Hansell McLaughlin Advisory are legal counsel and governance advisers with expertise in government relations and communications. We advise boards of directors and directors and officers of large, medium and small Canadian corporations. As part of our practice, we devote significant resources to thought leadership.

The proposed amendments to director elections in the CBCA contained in Bill C-25 are significant and introduce a risk of unproductive disruption for CBCA companies.

Our concerns about the proposed amendments led us to dedicate many months of researching and considering them. We also consulted a number of capital market participants and regulators to prompt discussion and closer consideration of the provisions.

Our analysis and findings have informed our views and are set out in our discussion paper, which I understand the clerk has shared with you.

We would like to raise three points with this committee.

First, while we unreservedly support enhancements to shareholder engagement and majority voting, our view is that the corporate statute is not the right place to make those changes. We already have majority voting in Canada through the TSX, guaranteeing majority voting for corporations representing over 98 per cent of the market value of Canadian capital markets.

Further, as you noted, Senator Wetston, at this committee’s meeting last Thursday, the CBCA is only one of 14 corporate statutes in Canada, and only 40 per cent of the TSX-listed companies are CBCA companies. Having such a significant differential in voting requirements could prompt corporations to simply move to a different corporate statute. Based on our experience advising clients, we expect a number of them will consider doing exactly that and that new companies may decide not to incorporate under the CBCA. Moreover, such different requirements in the CBCA are contrary to the objective of having a consistent approach to public company regulation across Canada.

Second, there is a risk that the way majority voting is structured in the bill will cause significant disruption for CBCA companies. In particular, the sudden death aspect of the elections will create a risk of material negative consequences.

Third, we believe that government should consider mitigating the worst of the risks of sudden death elections by introducing a delay or hold period following an election.

My partner Frédéric will provide more detail about these three points.

Frédéric Duguay, Partner, Hansell LLP: Since 2014, the TSX requires directors to be elected individually by a majority of the votes cast at any uncontested meeting. To comply, companies must adopt a policy requiring a director to immediately tender their resignation if not elected by a majority. A resignation must be accepted by the board, absent exceptional circumstances, and if the board refuses to accept the resignation, a news release explaining its reasons why must be issued within 90 days.

The results from the past three years demonstrate that the TSX regime is working as intended. On average, directors in uncontested elections receive support of over 94 per cent of shareholders who vote. In the few cases where directors have been voted down, the results also show that boards respond by accepting the director’s resignation.

Our firm has collected data from the past three years in respect of meetings and director elections that shows that the concern of “zombie directors” is not an issue in Canada, and we would be pleased to provide this committee with more details about this data.

The advantages of the TSX regime are its consistency and flexibility to address evolving circumstances. All TSX-listed companies are subject to the same requirements. The TSX also closely monitors director elections to assess compliance with the policy objectives of majority voting and provides additional guidance as necessary. These advantages would be diluted under a fragmented regime.


Our second concern relates to the potential for disruption from the “sudden death” aspect of the elections proposed in the bill. Following a “sudden death” election, a board would have no option to keep a director who has been voted down, even for a transition period while the board attempts to manage its affairs.

Public companies are governed by a number of requirements. “Sudden death” elections introduce unintended regulatory risks regarding, among others, the board’s composition rules for its audit committee, and the possibility of triggering change in control provisions in key commercial agreements.

We are also concerned that the provisions in Bill C-25 for director elections could be used for a purpose that is inconsistent with the policy objectives of majority voting. For example, dissident shareholders could take control of the board by voting against particular directors who may be unsympathetic to their agenda, without soliciting dissident proxies.

The underlying purpose of securities law is to provide shareholders with sufficient information to allow them to make a reasoned decision. The opportunity to make important changes to the board — and control the company’s direction — without a contested proxy solicitation is not consistent with this underlying objective.


Finally, we would like to recommend less disruptive alternatives to implement majority voting. At a minimum, the amendment should incorporate a 90-day hold period, which would mitigate the risk of being in breach of regulatory requirements and allow the board the opportunity to effectively manage its transition and succession planning.

With that, we would be pleased to take your questions.


Matthew Fortier, Vice President, Policy, Institute of Corporate Directors: Mr. Chair and members of the committee, thank you for having invited me to be here today.


The Institute of Corporate Directors is Canada’s association for boards and directors from the for-profit, not-for-profit and Crown sectors. We represent over 12,000 organizational and societal leaders who play a significant role in determining the strategies for many of our country’s most important institutions.

Canada’s corporate governance regime is a principles-based one. Our public issuers are subject to a fulsome set of rules through harmonized provincial securities and stock exchange regulations, and this is a system that serves us well.

At the end of last year, I ended my term as the chair of the Global Policy Committee of the Global Network of Director Institutes, which includes 19 jurisdictions from the U.S. and the U.K., to Pakistan and Malaysia and others. I can tell you after working with and travelling to many of these countries that Canada’s stable and ethical governance is a competitive advantage at a time when countries are looking for ways to attract people and investment.

In the interests of time, I will limit my remarks to two items in the legislation: majority voting and diversity disclosure.

In the ICD’s 2014 comment letter to Industry Canada, we argue that updates to the CBCA should not interfere with the mandates or decisions of provincial regulators or the TSX or add to the burden of companies by overlaying duplicative requirements. We also noted that the TSX had already mandated majority voting policies.

The TSX’s approach provides real consequences for directors who fail to receive a majority but provides boards with appropriate safeguards through the exceptional circumstances exemption to deal with the risk of failed elections. It’s important to note that the exceptional circumstances exemption in the TSX rules was used only once over the most recent year.

As well as failed elections, there are other possible unintended consequences of majority voting. A discussion paper released by Hansell LLP, my colleagues at this table, flagged a number of these, including the effectiveness of boards when directors fail to receive a majority; the inability for shareholders to have a say on replacement directors or, most concerning, opening the door to dissident shareholders using this change in legislation to target one or more directors in a self-interested campaign. To mitigate against these possibilities, we would urge the government to include a reasonable time frame for boards to address the consequences of a director being voted down by the shareholders. This would allow time for the board to reconstitute itself in accordance with the corporate strategy it has approved.

The TSX majority voting regime provides boards 90 days to accept a directors’ resignation. The ICD believes this would be a reasonable time frame to introduce into the CBCA. We hope that the government considers this proposal, and we would welcome the opportunity to work with them.

I’d like now to spend a couple of minutes discussing diversity disclosure.

The ICD believes that the more Canada views diversity as a driver of innovation, the better our boards, companies and economies will perform. Unfortunately, recent results from the OSC show that Canada is good distance from where we need to be to leverage our diversity in a way that helps drive innovation and competitiveness.

While disappointing, this isn’t necessarily surprising. Our public markets are fuelled by small- and mid-cap companies that are often governed by directors who are just trying to keep the company going. While it should be, diversity is not always top of mind, so our job is not only to convince Canada’s public companies that diversity is good for their business, but also to help them get there.

This time last year, the ICD, working with the law firm, Oslers, launched a Board Gender Diversity Template that provides all companies access to a templated policy that allows them to choose how they will diversify their boards on a timeline that makes sense for their business. I believe the clerk has provided you with a copy of our draft template.

Last month, with our friends at Catalyst Canada, CCGG, the 30 % Club, Women in Capital Markets, the Business Council of Canada and the Clarkson Centre, we founded the Coalition for Gender and Good Governance to help provide Canadian companies tangible ways to improve gender diversity. I believe the clerk has also circulated to you the Director’s Playbook, which is the first publication by this coalition.

But, of course, diversity goes beyond gender. This has long been the ICD’s position and is precisely what the diversity provisions within this bill aim at as well.

In a survey of ICD members released late last month, the top two societal concerns discussed by boards were the inclusion of new Canadians in the workforce and increasing the involvement of indigenous Canadians in the workforce. This is encouraging, but a recent report from the Diversity Institute shows that visible minorities account for only about 3 per cent of corporate board seats, so much more needs to be done.

For these reasons, we support the government’s broadened definition of diversity. Nevertheless, we should be mindful of the progress that needs to be made regarding gender diversity.

We feel there is momentum building and, while all diversity is important, it is untenable that over half of the country’s population is so under-represented in corporate boardroom positions. The ICD fully intends to continue building this momentum towards greater gender diversity on Canada’s boards.

Thank you, and I’m happy to take your questions.

The Chair: Thank you all very much for your very strong presentations. We will start now turn to questions from senators.

Senator Omidvar: Thank you all for being here. I have a series of questions.

Let’s start with Dr. Cukier. Thank you for your leadership, Dr. Cukier, on diversity issues, not just here but in other cases as well. You do not have a position on targets. You talked about the fact that you don’t take a position on targets, but I want to ask you what you would say to the setting of voluntary targets by corporations affected by this act based on that context and their circumstances. We had a discussion yesterday that one size cannot fit all, that the mining and gas sector has this context, financial services has that context, and manufacturing, et cetera. How would you respond to that proposal?

Ms. Cukier: Actually, I’m sorry if I wasn’t clear. We think targets are absolutely essential. We don’t have a position on quotas.

First thing, I think the government should really have in its mind where it wants to be five years out. That’s critically important.

The advantage of using targets is that they are flexible, as you said. It is not just for sectors, but while there is a lot of discussion about quotas for gender, you can’t really establish quotas easily for indigenous people and racialized minorities because the contexts are so different. In Montreal, 20 per cent of the population is racialized. In Toronto, it’s over 50 per cent. In Estevan, Saskatchewan, I wouldn’t venture what it would be, whereas in a city like Thunder Bay, the indigenous community is much larger.

The advantage of targets in Canada is that it allows us to adapt. If you look at the places where quotas have been implemented, they tend to be very homogeneous societies.

Senator Omidvar: You were quite elegant, I thought, in not taking a position on embedding the definitions around diversity in legislation versus regulation. You said “some say this” and “some say that.” I would like to know what you say.

Ms. Cukier: I’m a pragmatist. If you can embed the definition in the legislation and get it through the house and Senate, it’s a great idea. In the current context, getting it embedded in the regulation might be the best we can do. While legislation is certainly a more lasting solution and less subject to the vagaries of governments, defining it in the regulations is a perfectly acceptable compromise.

Senator Wallin: Welcome. Thank you. Good to see some of you again.

I’ve got a two-part question. On the question of targets rather than quotas, it seems that the track record of “comply and explain” essentially leads to companies setting targets for themselves. Are you saying the “comply and explain” approach here will probably work?

Ms. Cukier: I’m very attentive to the fact Senator Wetston is here, but “comply and explain” legislation can work. Canada’s employment equity legislation has actually had a measurable impact on federally regulated companies. It’s certainly slower than other approaches.

The accountability and transparency are key, because if you have “comply or explain” legislation but people are only complying and explaining for a government official and the public is not able to access that information easily, it does not have the impact. I’m a big believer in consumer and corporate activism. If you start making this data more readily available, people will vote with their money, and that will move corporations forward faster than anything else.

Senator Wallin: As we discussed yesterday, if boards remain all male and aging, people will notice.

To you and Mr. Fortier, just a quick comment, because we have been going around this: The minister, and the legislation, therefore, is clear that they don’t want to just use the gender targets, the racialized targets and disabilities targets; he is looking for something else and trying to work in the realm of ideas. He wants people with diverse views, approaches and thinking, and that presumably will bring us to a different kind of board. Do you agree with that approach on some level, and if so, can you give that a bit of definition?

Mr. Fortier: Sure. The definitions that have been discussed around gender, ethnicity and others are probably the right place to start. You get into some trouble when you say “simply diversity of background or experience,” which are important. But having two White men who ran two different banks is not necessarily diversity. You have to be careful about having it too broad. You do need to define these things, and gender is the right place to start.

I want to pick up on something Dr. Cukier said in her presentation that what gets measured, gets done. If we can encourage more corporations in Canada to have policies and targets, that tells shareholders they’re going to do this and if they don’t, there’s a problem. That’s what we’re getting at. Whether you define that by gender or something else, that’s up to the company ultimately, I think, but you have to be careful about having too broad a definition of diversity.

Ms. Cukier: I would echo that. As a minimum, we need the four employment equity categories. We have been doing that in Canada since 1986. Federally regulated companies have been reporting on this. It’s too bad Senator Marwah is not here, but I’m sure he can talk about what the impact of that has been. The four are a minimum, and then I think we can move beyond that. One of risks of taking it too broad without being specific is you can end up with astrology as a dimension of diversity, such as “I’m a Sagittarius and you’re not.”

We have to start with employment equity. Many companies already think sexual orientation and gender identity are included. There are some big banks that want to drill down into the racialized minorities and break it out even more. Age can also be an issue. I’m on some boards where there’s a real commitment to ensuring generational diversity, because you want those different perspectives.

But I will say emphatically that employment equity categories need to be the base.

Senator Wallin: What comes up in all our discussion is that you may have a woman of colour who is just as traditional as anybody else, and you might have a middle-aged White guy who says, “Come on, let’s have all the diversity in the world.” That’s the trouble.

Ms. Cukier: The skills matrix usually helps, but I think it’s true that within-group differences can be as big as between-group differences — I’m not a typical girl — but we know on average there are certain kinds of experiences that women have that are different and bring to the table. Indigenous people bring different experiences. Racialized minorities and immigrants bring different experiences. So those broad categories do serve a purpose, but I take your point.

Mr. Fortier: One of the things we say often is that this is about performance, not conformance. Your example is the right one. If you have someone who meets a certain definition of diversity but they’re not necessarily the best for the job, that’s not where you want to be. There is no easy answer to this but, at the end of day, you want high-performing boards.

Senator Stewart Olsen: There has been absolutely no pushback here on the gender and diversity initiatives, but from testimony, we hear that it’s very slow and difficult, so setting targets is what everyone is recommending. I don’t understand where the pushback is coming from on the existing boards. I’ve always thought that cream rises and it doesn’t matter, and I think that’s been reflective. I know things are slow, but can you just kind of fill me in a little bit on those thoughts? Why is this so difficult? Is it really difficult, or is it a misperception by perhaps some of our witnesses that this is not happening in Canada?

Mr. Fortier: No, I think the statistics bear out that it is not happening at the rate that the ICD would like to see.

In terms of challenges, often people think of corporate boards and they think of big bank boards or very large-cap company boards. If they are not doing this, they have the resources to do, and therefore they should just do it. There is no shortage of qualified women to fill those board positions. But the reality of our capital markets is that it’s mostly small- and mid-cap companies, and they’re mostly in mining or extraction sectors. It has not been a top-of-mind issue for them. There are also issues in terms of who people know, because we also know board seats are often filled by people known to the board.

There is a lot to unpack. It’s not as easy as saying do it by next year or else ,because actually it’s harder to do than that. Just going back to what I said earlier, if you get companies to buy into the idea that a diversified board will likely be a better board because it will be more innovative because you have different experiences talking about the issues, then I think you can start that conversation again and say that by 2022, we can get there. But it is harder than it first appears.

Ms. Cukier: I think that part of the issue, and I’m on the board of small and big organizations, is around intentionality and the fact that very often if it’s not top of mind, people think about their friends or the friend of the friend, or they reach out through their social network, and all of us tend to have fairly homogeneous social networks, whether it’s the people we went to university with or the community we grew up with. So you do really have to make it intentional. That’s one thing.

The second thing is it’s a two-way street. You need the boards to be intentional about it, but you also have to do the outreach into communities and ask whether they thought of being a board. Because if people don’t see people who look like them in those roles, it shapes their aspirations. If people work in organizations where leadership looks different and they think they only pick each other, then that shapes their willingness to put their names forward. We see this in women, in particular, on boards. They need sponsors and mentors and more encouragement very often to put their names forward than others do. There is not a simple solution. You need a lot of work on the ground as well as by the boards.

Senator Stewart Olsen: I listened to your presentations on majority voting. Can you just go over a little bit more of the basic rationale behind it? It seems to me that you want to change boards with gender and diversity, but you prefer the status quo regarding majority voting. I’d like some feedback on that, if you wouldn’t mind.

Mr. Duguay: I think you have to look at it as two separate issues. Gender diversity is a director issue. For majority voting, we are talking in terms of the mechanics for director elections.

Under the current regime for the TSX, which already has majority voting, a director who doesn’t receive a majority of votes must immediately tender their resignation, and then the board has 90 days to accept or announce that it rejects the resignation on exceptional circumstances. Where the bill changes this is that the annual meeting essentially becomes a sudden-death election. If you don’t receive a majority of votes at the annual meeting, you are immediately off the board.

Our concerns in that respect relate to unintended consequences, that this could happen in a way. For example, public companies, other than complying with the corporate statute, have to comply with other regulatory requirements under securities law, for example. Under securities law, your audit committee has to be comprised solely of independent directors who have a background in financial reporting matters as well. If your chair of the audit committee is suddenly voted off at the annual meeting, he’s off the board on that particular date, which means that now the company is no longer in compliance with that particular aspect of securities regulation.

Where we’re trying to address these particular concerns with what we have proposed in terms of a holding period is that by allowing the board time to address the consequences of the vote and not be immediately offside on certain requirements, the board needs time in order to find a replacement, recruit a new director, rearrange its board and engage with the shareholders in order to understand the consequences of that vote.

It’s really in the mechanics of how majority voting is proposed in the bill and trying to address these unintended consequences because they are not similar to what we currently have in place with the TSX regime.

Mr. Fortier: It’s important to recognize that this is not just a corporate governance or compliance issue or mechanical issue, which it very much is as well. You start to get into hypotheticals, which is always dangerous.

One of the concerns we have is a board recruits a very talented person. She’s an expert in blockchain technology, and they’ve decided this will be the future of their company and this director will advise management and play a role a little more hands-on than is traditional. Then that person gets voted off for whatever reasons, and the reasons can be many. It can be legitimate, or it could somewhat illegitimate because the advice they got from their proxy advisory firm, for instance, was not particularly great. So that person is gone, and all of a sudden you have a void and you don’t know where you’re going to go. If it’s a sudden death, that person is gone. How are you going to forward the strategy? How are you going to oversee an important part of the company’s future? If you have 90 days, you can mitigate against that, and I think that’s what we’re talking about. Just to reiterate what Frédéric said, it is a separate issue from gender diversity.

Senator Stewart Olsen: No question. I understand. So you are okay with majority voting with a longer time frame.

Mr. Fortier: And we already have it in Canada on the TSX.

Senator Ringuette: My first question to Minister Bains when he was in front of us last week was what the time frame to review this legislation and the regulations to see if there was progress, and he indicated three to five years. Do you believe that within the period of three to five years there will be progress, or are we too ambitious in our outlook?

Ms. Cukier: Well, as I said, we saw, without this legislation in place, in Montreal-headquartered corporations, we saw a 40 per cent increase in the representation of women, and we saw in Toronto about a 30 per cent increase. So if people are intentional, you can make a difference. My concern was we saw the representation of racialized minorities actually go down, and so that’s why I want the same intention that we’re focusing on gender be applied to some of those other areas as well.

But I think the government, based on the data and based on what it knows about the composition of boards and corporations, can say that we should be at 30 per cent in five years. I don’t think that’s an unreasonable target, given where we are today. They could say we should be at 15 per cent or whatever for racialized minorities. There is enough data that they could set global objectives or targets and then really track toward those and make them public, because we need to know where we’re trying to get to in order to move this forward.

Senator Ringuette: For my second question, I’ll make a comment, and correct me if I’m wrong. You kind of alluded to it earlier. I get the impression that boards of directors seem to reelect themselves or their friends, and it’s kind of almost an incestuous process. Is that so, and how frequent would that be? What can we do to change? I know this legislation should help in dismantling this culture, and it is a culture. But what is the percentage of this happening right now, from your experience?

Mr. Fortier: I won’t use the word “incestuous” because I’m from Institute of Corporate Directors, but I will say that I don’t think you’re wrong. I think that that has been the way that boards have constituted themselves over time. It is beginning to change, but you’re not at all off base by saying — let’s put gender aside — who do you know, who do you trust and who would be a good fit around this table. That’s often what we’re talking about, and, of course, soft skills are very important.

I’ll plug us a little bit: We have 12,000 members who go to 130 events across the country to meet other directors. It’s education. They learn what is going on, whether it’s blockchain, AI or just more kinds of nuts-and-bolts issues. A big part of that is getting to know different qualified people so that your network expands. Yes, you can go through executive recruiters, which they often do now, but it still very much relies on who do you know and who do you trust. That’s not necessarily a bad thing, but you need to know more people and you need to trust more people.

Ms. Cukier: I would echo that. I have been on a number of boards. Unless you have somebody who really is raising this issue and concerned about this issue, it’s unconscious bias. It’s not that people necessarily intend to exclude people. It’s who they know and who they are comfortable with.

One of the other things that I think is also important is you have to think about retention. If you bring someone in who is different from everybody else around the board in terms of how they think, interact and so on, if there is not a process in place for supporting them and ensuring that they feel welcome, they’ll come in and leave just as quickly.

There is a lot of work that is tied to good governance that actually starts to move this forward by introducing rational, objective-driven processes that will get us where we need to go.

Mr. Duguay: It’s important to say that boards are very thoughtful about their succession planning. When we look at the results from the past three years since we’ve had the “comply or explain” regime for TSX-listed companies, I agree that the results may show that the improvement has been glacial and incremental, but it has forced boards to recruit forward and to be thoughtful about the directors that they need on their going-forward basis. Also, what the evidence shows is boards that have adopted targets, for example, are very mindful in recruiting forward and having something to measure against. That has forced the boards to think more broadly in terms of how they recruit directors, so whether they go to third parties such as using search firms or whether they try to expand their networks.

In the past, we’ve worked with a board based in the Prairies that had a lot of business in Atlantic Canada, and they needed to recruit a director from Atlantic Canada. What they did is they called a prominent politician from Atlantic Canada and said, “We would like to recruit more women on the board. Do you have four or five women that you know from the region that you think would be a good fit for this board?” That’s essentially how they ended up recruiting that director to that particular board.

It’s thinking broader in terms of that particular approach and how you recruit your directors and plan for succession. Again, the word I would use and repeat is “recruiting forward.” That’s key.

Ms. Cukier: One of the things that we have been working with, because it’s true that a lot of these companies are start-ups and they are small and their networks are not as extensive, is starting to promote peer-to-peer connections. We know that immigrants are more likely to be entrepreneurs than Canadian-born business people, so starting to show small businesses how they can partner with other small businesses and get to know people who they might not normally associate with in order to advance global objectives has been very successful on a small scale. That’s how you start to build those networks.


Senator Dagenais: I apologize for being late. I have two questions for Mr. Fortier and Mr. Duguay. In order to sit on a board of directors, you have to have certain skills to obtain these positions. If you do not have the necessary skills, this can slow down or complicate the management of a company. Can you give me some examples of the difficulties you encounter with regard to diversity, when recruiting members? Is the issue different from one province to another? I know we spoke about the Maritimes earlier.

Mr. Duguay: First, it depends on the company and the industry. We put a lot of effort into defining the competencies you need to sit on a board of directors. With the majority vote, if we need an administrator with a key skill, for instance in the area of information technology, or in an emerging industry, there aren’t necessarily hundreds of directors who are willing to take over at the point when the director is voted off the board. This makes things difficult. As for regional diversity, again, that depends on the company. If the company does a lot of business in various regions of Canada, it is important that it have representation from that region. As I said earlier, boards of directors take pains to define the competencies they need on the board. The skills depend on several factors that relate to experience in a given industry, a given area, and, increasingly, on gender and ethnic diversity.

Mr. Fortier: I would simply like to add that banks clearly do not have many problems finding qualified directors. In smaller sectors, such as extraction, it is more difficult because the networks are smaller also. That is why we drafted our diversity policy. We make it available to all companies, because it is important that they start to reflect on diversity. This does not necessarily mean that by 2020, 30 or 40 per cent of board members will be women, but companies have to start to think about it. It’s more difficult in the mining extraction sector in the west, and in the technology sector. These are often very small organizations where the networks are not very extensive.

Senator Dagenais: I am going to be cautious in what I say, but I’d like to talk about certain boards I was supposed to sit on because I was a member of a government organization. In Quebec, when you are a part of a government organization, you are automatically catapulted onto a board of directors. This does not necessarily hamper the management of the government organization, but do you think that boards should look for people from the outside? Often, the people on the board are already implicitly a part of the government organization. They don’t look outside. I’d like to hear what you think.

Mr. Fortier: There are many advantages to finding people from the outside. As we said earlier, often the same people are recycled on boards. It’s good to find new blood and people who are conversant with the new technologies, the new business methods. It’s not easy. We have 12,000 members. They are not all directors. At least 60 per cent of our members are, but 40 per cent are trying to find their first seat. They are very accomplished, and they are all experts in their area. Yes, that is very important and if you have any ideas, I’d like to hear them.

Mr. Duguay: I would say that a lot depends on the recruitment process. I think there is a distinction to be made between a Crown corporation where there may be a governance structure that means that certain directors from a given sector will be part of a board of directors, as opposed to a public company where they really try to find the most qualified administrators to sit on their boards.

Organizations like the Institute of Corporate Directors — which has a large database, chapters in all provinces in various sectors, including the non-profit sector and the public sector for Crown corporations — are a good starting point for many boards of directors when they are looking for directors and potential candidates.

Senator Dagenais: Thank you very much, gentlemen.

Senator Massicotte: Thank you very much for being here with us. My question is addressed to Mr. Fortier or the Hansell representatives. The bill does not talk about the “say on pay” concept. This is, however, a very current concept among public companies. Is that an important gap? I am surprised because this seems to be an important tendency, and the federal act is not only about incorporation. It also has to set an example and talk about values. Given the pay equity problem there is in our country, I would have thought that there would be a section on “say on pay”. Do you have any comments on that omission?

Mr. Duguay: It’s not an important omission. It is important to make a distinction between the Canada Business Corporations Act, which is really the act that concerns incorporation, and the 14 other acts that allow incorporation in Canada. A company with its head office in Ontario may incorporate under the British Columbia act, and there are a lot of examples of that because it is an act that provides a little more flexibility. As for governance or imposing regulations on public companies, the Toronto Stock Exchange and securities commissions already have the authority to impose those regulations.

It is true that in Canada we do not have a “say on pay” regime, which gives shareholders the right to vote on the remuneration of executives. When you look at the statistics regarding companies on the Toronto Stock Exchange, this involves over 75 per cent of companies, or at least the 250 largest companies in Canada. I would say that this is something the market has already imposed on large companies, and I don’t really see the point or need to have a specific rule, especially within an act on corporations.

Mr. Fortier: I’d have two things to add. First, we did not have the same abuses in Canada as there were in the United States and the United Kingdom.

Senator Massicotte: Not as much, but not far behind.

Mr. Fortier: Yes, I understand.

Second, it is really the investor’s role to let his board of directors know if he does not like its structure. We encourage our boards to initiate dialogue with their investors. That is clearly the best way to get along successfully.

Senator Massicotte: Do you have any comments on the separation of the positions of CEO and chair of the board of directors?

Mr. Duguay: In Canada, we have yet to see any situations where the positions were combined. We have never had this problem in Canada. Market practices over the past 15 or 20 years aimed to separate the positions of chair of board of directors and CEO within large public companies. The TSX made that recommendation in 1994, and it is included in securities commissions’ company rules of governance. There’s really nothing to add to that because the situation and the abuses do not exist in Canada.

Senator Massicotte: Do you agree, Mr. Fortier?

Mr. Fortier: Absolutely.


Senator Wetston: I must say that I have to declare that I’m very proud of the former staff of the OSC coming before the Senate committee and presenting so well in both official languages. I must put that on the record of this particular meeting.

The Chair: I suspect it was good training, senator.

Senator Wetston: I think Mr. Duguay would agree with that. But having put that aside for a moment, welcome to you all here today.

I want to just explore a bit the “comply or explain” approach, which obviously is the instrument of choice in this bill. We all recognize that there was some progress in the first couple of years and then things seem to have slowed down. There are some stats that suggest there has been some improvement in some areas, but we seem to focus on the 1 per cent, and I can understand that. Admittedly, the “comply or explain” approach is unique for Canada, and we all understand that. The review and your discussions around this are very helpful, because obviously all policies need review at an appropriate time.

I wonder if you could share with me what your thoughts are about how you could improve the “comply or explain” approach, if that was what ended up being the result of Senate decision and the matter going back to the House of Commons. Can you help me with that?

Ms. Cukier: From my perspective, it really is less about the legislation and more about what is done with the legislation. I do think that the visibility and the attention that’s focused on the results of the legislation have a huge impact on how the public responds and how, frankly, clients of many of the companies that are affected by this respond.

I give you the example of Legal Leaders for Diversity. Some of you are familiar with them. They have said that they will use the diversity of law firms as one of the factors that they use in determining who they will give their business to, and they represent the legal counsels of many of the largest firms in the country — Deloitte and so on. That has more impact on the behaviour of the law firms than anything you could put in legislation.

To me, it’s the link between those two things that really makes the difference. The extent to which a light is shone on the performance of companies with respect to their diversity data will have, in my view, potentially a measurable impact only if their clients and the public think that this is important. My view is clients and the public increasingly do think that that’s important. It’s the two things together.

Senator Wetston: I don’t mean to have just have a conversation, Chair, but I wouldn’t mind pursuing this a bit more.

The Chair: Absolutely.

Senator Wetston: I personally believe that diversity is good governance. Mr. Fortier, do you agree with that?

Mr. Fortier: Absolutely, yes.

Senator Wetston: If you do believe that, I would be hoping that whatever is selected as the instrument of choice would be one that changes culture and is sustainable. Which of these would do that?

Mr. Fortier: Of the options —

Senator Wetston: That are being discussed. A lot of research has been done. I personally read many papers across the board on quotas and targets and “comply or explain,” a little less on “comply or explain,” although that’s the approach in the U.K. and Australia, more or less. Let’s recognize that this approach that was adopted by the OSC and the CSA is less than three years old, so it’s not very old, but that’s not a rationale for not having greater diversity.

When you put it in that context and ask if the financial performance of the firm will improve if you have diversity, some say yes and some say not so clear. I’m personally in the camp where I think it will improve, mostly because I have great experiences with diverse individuals working in the workplace and believe it will improve the dialogue and discussion and opportunities that exist in organizations. That’s a personal view.

Having said that, when I talk about good governance, really what I’m requesting of you is this sort of analysis across the board of why you think Canada should accept “comply or explain” versus targets, for example.

Mr. Fortier: I think targets and “comply or explain” can actually coexist anyway, but if we’re talking about quotas — well, let me start with corporate governance side of things. I define governance as being more than just what the board does. Governance really is that ecosystem between the board, management, investors and regulators.

If you look at the shareholder-board-management dynamic, I think shareholders expect innovation from their companies. I think they expect better performance. I agree with you that a diverse board is more likely to lead to more innovation and better performance over time. Not only do I believe it, but I have seen evidence to support that. I think shareholders need that. We live in a pretty competitive world, and you are looking for any advantage you can.

I said earlier in my comments that Canada has a really good system of governance, and it’s an advantage. I’ve talked about it as being a natural resource, but like any resource it is only renewable if it’s renewed. You need to get more and different people around the table.

On the question of quotas, one of the most famous examples is Norway. The woman who introduced that, Turid Solvang, is a friend of mine. I have worked with her extensively, and we had her over to Toronto to talk to our members about how that worked and the experiences they had. As Dr. Cukier alluded to, Norway is a very homogeneous society. It is a very different context and, by the way, successful in some respects and not as successful in others. Very few companies went beyond the 40 per cent, for instance. A lot of women ended up being over-boarded because there weren’t as many women as they had hoped. A lot of companies delisted, so it’s not an automatic fix. Canada is just a different market.

For that reason, I think “comply or explain” was the best way forward, and I think it can live side-by-side with targets.

Ms. Cukier: I would add that legislation is a tool, but legislating things that are not accepted by the people being legislated can often result in unintended consequences. That’s one of the arguments that’s been advanced around this.

As I said, to me, the employment equity legislation in Canada, which has a 30-year history, is effectively “comply or explain” legislation. It was not called that, but it was to a certain extent. If you look at the organizations that have been subject to that, they’ve done well in advancing their goals around this, and I think the financial institutions are, in fact, ahead of the pack, for instance.

Mr. Duguay: I would add, Senator Wetston, that Canada has been very successful at having strong corporate governance through “comply or explain” for many decades now, and to me that would also include when we are looking at diversity.

What we are seeing is shareholders are being more vocal in terms of what they expect. Proxy advisory firms now have increased their guidelines whereby if boards do not —

Senator Wetston: As ISIS did recently.

Mr. Duguay: As they did.

Senator Wetston: ISS. Did I say that wrong? I apologize to ISS.

Mr. Duguay: Let’s not forget Glass Lewis as well; they always get left out.

Starting in 2019, boards that do not include women will have immediate consequences, and this is where majority voting becomes very relevant in that respect, and proxy advisory firms will recommend to shareholders that they withhold votes against chairs of nomination committees of boards that aren’t at least making an effort and proposing a solution forward.

I would also add that in Canada, when we look at our ecosystems of public companies, for example, we probably have one of the most diverse jurisdictions. We have some of the largest corporations in the world and multi-billion-dollar market caps. We have many corporations that have market caps of $5, $10 or $15 million. These are small corporations that are going public. “Comply or explain” supports the fact that each of these corporations can say what makes sense for them, what can be measurable for them in embracing this if they are looking at diversity and how they can put a plan forward that everyone within the board will support and also, more broadly, with stakeholders.

Senator Wetston: I actually have to ask a question on majority voting, if you don’t mind.

The Chair: Of course not.

Senator Wetston: The report you prepared is helpful and comprehensive, and I appreciate getting it. Of course, this wouldn’t be the first time we’ve had an opportunity to talk about majority voting, as you may know. I’m sure you would agree with me that the proper place, as a starting point for majority voting, would be a corporate statute.

Mr. Duguay: Fundamentally, yes. The election of directors is a fundamental shareholder right, so in that respect, if we are dealing with provisions dealing with director elections, then yes, they should reside in the corporate statute.

Senator Wetston: Which is what the intention is here.

Mr. Duguay: Which is what the intention is with the bill. However, we have to understand that the corporate statute is not primarily aimed at multi-billion-dollar corporations. I think we have over 250,000 corporations governed under the CBCA. Many of them are small, privately held corporations, and majority voting has absolutely no effect for these types of corporations.

Senator Wetston: You know I will not have a debate about this here. I simply wanted to know whether majority voting and elections are properly placed in a corporate statute.

Mr. Duguay: They are properly placed under the corporate statute. What I would say, though, is for public company regulation, it gets complicated when you over-regulate in a corporate statute.

This committee and Parliament in 2001, the last time the CBCA was amended, removed provisions that were dealt with under securities law. Here, what is interesting is we are actually going in the opposite direction.

Ms. Kushneryk: Senator Wetston, your question is whether it belongs in a corporate statute, and the one thing I will add to Mr. Duguay’s comments is that it is a question in a vacuum.

Alluding to what Mr. Duguay said about what has already been done over the last number of years in Canada, we have 14 different corporate statutes in Canada. We are in a context where the TSX has already established an approach that is already under way, so asking whether it’s appropriate in a corporate statute —

Senator Wetston: I’m not trying to ask you this question out of context. Welcome to Canada. We understand the framework well. What you left out were the 13 securities regulators as well, so we have a lot of regulations here.

My last comment is that I could not agree with you more that we need a hold period, and I will say that for two reasons. Despite what you’ve described as the 90-day period for the TSX, they have defined exceptional circumstances when they would allow it to occur, and they have even toughened that up more recently. It’s just my suggestion that a hold period, with respect to the CBCA and majority voting, would be an appropriate thing to recommend. Would you agree with that?

Mr. Duguay: I would. What we’ve put forward in a paper is that with the hold period at least gives the board the opportunity to address the consequences of the vote at the meeting. Currently, under the bill, there is no ability. As we refer to it, it’s a sudden-death election. You are immediately off the board. In that regard, the hold period is important because you don’t want to deal with any of the unintended consequences that we have tried to highlight in our submissions to this committee.

Senator Tkachuk: When we’re having this discussion about boards of directors, they aren’t necessarily a thing that a lot of people want to be on, for example. There is a lot of liability, a lot of risk, a limited talent pool and it’s a difficult job.

So why is it important that we have diversity? In other words, if a company is doing well and making money — which is what it’s all about — and I’m an investor saving for my pension fund, why is it important to have diversity when everything is going well? Why is that important?

Mr. Fortier: I agree with you that it’s not an easy job. In fact, we have a directors’ register of 4,000 people or so, 1,300 of whom are women and who have the ICD designation. Sometimes we ask them why they would want to do this anyway, for all the reasons you just listed. It’s a lot of work and frankly, contrary to popular notions, it’s not a lot of money for a lot of these. That said, I would maybe tweak what you said about it being all about making money. That is a very important objective, but a director’s job is actually to be mindful and to steward the long-term health of the corporation, not just of the shareholder. There is a distinction there, and we can talk about that a little bit more. I would ask my lawyer friends to weigh in on that as well.

If you talk about diversity, you need to better understand the context within which you’re working, so first and foremost, your shareholders, but I would argue that if you have the same people sitting around the same table for 15 years, you are not going to get much of a diversity of opinion. Even if you’re profitable and things look like they are going well, there are a lot of black swans out there. If you don’t have an understanding of what the context is, or a better understanding, then you’re likely to get hit by one of those black swans.

Senator Tkachuk: You might go broke, so you will pay the price.

Mr. Fortier: Sure, but I don’t think that’s what anybody wants.

Senator Tkachuk: I know that, but the point is we don’t have a responsibility to tell people exactly how to run their business because we don’t guarantee their profit. People take risks with their money and go about their business. If they make money, they make money, and if they lose money, they lose money. If diversity is good, and I believe that it is, then people will do what they have to do to make money.

Right now, universities have, in medicine, law and accounting, more women than men. In engineering, they don’t, by a long shot. They’re getting there, but there is still a long way to go. I don’t see a lot of women electricians, plumbers and garbage people. They’re not in that field. But there are some men coming into nursing. Most of it is nursing.

All I’m saying is that all of these things have different skills. In the data that you’re collecting, are the skills reflected? In other words, if you’re an engineering company or a plumbing company, are the skills reflected in the data that you’re building and you’re giving to us? Because I think diversity is kind of a big industry.

Mr. Fortier: If I can start, very briefly, the answer is yes. As Frederic alluded to earlier, skills matrices are what most responsible boards rely on to fill board positions now. I think the idea that there aren’t enough qualified and skilled women is one that’s been kind of thrown out the window.

Senator Tkachuk: I didn’t say that.

Mr. Fortier: I know you haven’t. But I think that we need to be conscious that there’s a much broader network than the one that’s been relied on, and we need to be tapping into those talents of, in our case, 1,300 women, but there are many thousands more out there, to fill board positions going forward. But not only women or not only people as defined by the diversity we’ve talked about today. We just need to broaden the network, I guess is what I would say.

Ms. Cukier: I think you’re absolutely right that there are certain professions where different groups are under-represented. I haven’t seen a lot of demand on boards for garbage men and plumbers, but I’m sure there are boards in waste management and so on where those particular skill sets are important. That’s one of the reasons why setting targets, “comply or explain,” will allow you flexibility for specific industries.

But I would say two things. I would say, first of all, if you’re committed to a meritocracy, you want to make sure there’s a level playing field so qualified people can be tapped into. I would observe, based on the research, that there are currently barriers to very well-qualified people from making the contributions that they could make. So that’s one point.

The second thing is that on many boards, when you look at the skills matrices, of course it’s important to have the deep-sector expertise. If you’re looking at oil exploration and so on, typically they want people from those industries. But in most boards, you also want financial acumen and legal advice and governance expertise. I’m thinking of the boards I’m on and our skills matrices, strategic thinking. Increasingly we see boards, for example in telecommunications, who also want deep expertise in their markets, so they want to know about health care, which means they’re starting to look at who is on hospital boards and saying, “Oh, those people could actually be useful.”

I would agree with you 100 per cent that what we want is high-performing companies, and I think there’s really good evidence that suggests that if you get this right, you not only drive performance, but you also drive corporate social responsibility and those other things that we expect businesses in Canada to contribute to.

Senator Unger: I thank all of you for your presentations. This is so interesting.

I’d like to go into the issue of women. I do support diversity, yet I believe that most Canadians, men and women, don’t view quotas favourably. Dr. Cukier, if quotas are imposed, do you have any concern that it will have a negative impact on the view of women in the workplace? How do you think such measures would affect the working relationship between women who have maybe earned their way through a company to be appointed to a board? Is there a difference between those who were granted the position through a quota?

Ms. Cukier: I’ll answer your question by coming back to what I said earlier, which is I think there’s a big difference between setting targets and having quotas imposed. To me, a quota is something where I say to you, “You must have 30 per cent of your board members women,” and a target is something where you say, “We want to have 28 per cent or 35 per cent of our board as women, based on our analysis of the pool and where we want to go, and so on.”I think that distinction is very important.

I think Senator Wetston pointed to the fact, as did Matthew, that the research on quotas versus targets is mixed. I do think there is more risk with quotas of unintended consequences in a range of areas, particularly because I’ve been focused not just on gender but on the issues around racialized minorities, indigenous people and so on. I don’t quite see how we can get to quotas that would apply across the country when we have such demographic diversity in a city like Montreal, Toronto or Thunder Bay. That’s why I favour setting targets that are established by the organization as opposed to quotas that are imposed.

At the same time, I feel very strongly that government should have in its head what they think are reasonable targets overall for the impact of this legislation so that we have something to assess our progress against. Does that make sense?

Senator Unger: Yes, it does. This isn’t relevant to this topic, but in the oil sands, companies have switched to employing women to drive the huge earth movers, and the simple reason is that women are more careful and there are fewer accidents, so diversity at a lower level has certainly happened.

Senator Tannas: First of all, I want to express my great relief in hearing that the sponsor of the bill is promoting an amendment. I think it is an important amendment. I don’t know whether you’re going to propose it or whether you’d like these people to provide us with a sample amendment, but I think this bill should not leave this committee without a recommended amendment with respect to the hold period.

We’ve had discussions pretty consistently about a director who would not achieve a majority, but in fact the nightmare scenario is all directors don’t receive it because there is financial difficulty or there’s been some event that shareholders are angry about. While they wouldn’t necessarily collectively do this, they might collectively do it through individual actions: “I’m just mad, so I’m going to do this,” and everybody is mad, and they wind up damaging the corporation to the extent that now they’re completely high-centred, with no governance structure whatsoever. That is a nightmare scenario that also — I’m putting these words in your mouth; maybe you can talk about it — would create unintended consequences that could be quite substantial. Is that fair to say?

Ms. Kushneryk: Senator Tannas, that’s absolutely our view. One of the things we talked about in our paper was alternatives for opportunities for shareholders to communicate their frustrations. Right now, the ballots provide for voting for or withholding a ballot. There is another option we talk about: Some jurisdictions use an abstain box, but that could be labelled otherwise, to express those frustrations. I know that’s beyond the context of what’s in this bill, but there are ways to tackle that issue. But absolutely, the hold period should mitigate the worst of those potential unintended consequences.

Mr. Duguay: An important concern that you raised, Senator Tannas, is that through majority voting, particularly in Canada, when we look at sectors such as the mining sector where you have a lot of small corporations with concentrated ownership, we know from data that annual meetings have a low threshold of shareholder participants. A lot of retail shareholders won’t necessarily vote at the annual meeting. You find yourself in a situation where you could have a dissident shareholder who is not in agreement with a certain subset of directors on the board and is basically using majority voting as a way to obtain control of the board, which is not the intention of majority voting. The intention of obtaining control in a contest for corporate control under securities law, we know, is through disclosure and through a dissident solicitation, which majority voting does not provide in that particular respect.

Mr. Fortier: I will add one thing to that. This is something that is probably not addressed enough: the board-shareholder engagement piece. Understanding what the pain points are for shareholders is really important, because if you don’t, then you might get voted down. We do a pretty average job in Canada of engaging with our shareholders, and there are a lot of reasons for that. It is getting better, but a lot of it has to do with the fact that companies often do not know who the shareholders are. It’s not just because there are millions of retail shareholders, but because there are rules in place that allow you to hide your position. There are good reasons for that, but it is what it is. The more you understand why people hold your stock, and the more the shareholder understands what the strategy is, the better off we’ll be. That doesn’t fix everything, but it probably mitigates against some of this as well.

Senator Tannas: We in Canada are somewhat unique in that some of our largest companies came to be with a $500,000 IPO — tiny little IPOs that are done. As you or somebody mentioned, there are a huge number of publicly traded companies that have market caps today of $5 million to $20 million. It is in those companies where some of my own personal experience is, where you are in lockstep with shareholders. There are people who have large positions within that shareholder group. The idea that somehow they should be held to the same standard as the Royal Bank is bonkers; right? It doesn’t make any sense.

Senator Marwah raised yesterday the idea that large-cap companies are actually moving relatively quickly through the evidence of new directors and the composition of new directors, and that mid-cap companies have been given a bit of a pass, but it’s coming. We’ve seen it with the activities of proxy advisory firms that are marking down companies that are not moving along on this.

We haven’t heard anybody say that we should be wringing our hands less about the smaller companies that are focused, in lockstep in many cases with their shareholders, where the shareholders and the board members are the same — that we shouldn’t be skewing all of our numbers in a bad way over this segment of companies that are really in the founding stage. Some of them will become big companies, have great governance and be able to think about those things, but little companies don’t think that way, nor should they, in my view. They shouldn’t be thinking about that. They should be thinking about building a business and making it survive, and then they can think about these higher-minded ideas. Do you have any comment about that?

Ms. Cukier: I work with a lot of start-ups. I was previously the Vice-President of Research and Innovation at Ryerson. We have one of the largest incubator networks across the country. I would argue that good governance is actually almost more important for some of these smaller companies than it is for the banks, for example.

But to your point, that’s also part of the reason why I think that what we’ve been talking about, which is very much generated by the companies themselves and driven by what they actually need to be successful and have good governance principles, is very consistent with what we would argue if we’re trying to incubate, accelerate and help companies grow.

We’ve seen founder’s syndrome all over the place. A lot of companies get stuck because of — I think the word “incestuous” was used — because of those incestuous relationships on the board and they’re not reaching out to get people with broader views, more expertise and so on. I don’t see what we’re saying as being at all inconsistent with what you’re talking about.

The other thing is that, increasingly, large corporations are looking at these issues in terms of their supply chain. If any of those small companies are doing business with large organizations, this is becoming a lens that some of the largest institutions, governments and so on are applying to contracts.

These things are often dichotomized: Either we have business objectives in mind, or we have diversity objectives. It was said very well by Senator Wetston that those are actually not different things.

Mr. Fortier: At the ICD, we work a lot with smaller companies, small private companies as well, and I will say there is a real appetite for good governance. They know that they don’t know a lot of stuff, and they feel that it’s a competitive advantage or it will advantage them to be more organized and to have better governance systems, so we put a lot of effort into that, particularly in smaller markets.

The one thing I would say regarding my remarks on the diversity disclosure issue is that the whole point behind our diversity template was to reach those smaller companies and to get them thinking about diversity. It wasn’t to tell them they need to get here by X. It’s more, “What could you do?” and to try to explain to them why it could be to their advantage to do so. The motherhood statement we made was “get them started on their diversity journey,” which is kind of a marketing statement, but it’s true. We need more companies thinking about how to diversity with not just their board but their management and leadership position as well.

Ms. Cukier: One other thing — and I mentioned it earlier — we know that companies that export grow faster than companies that don’t — and are very important. It’s very hard to enter international markets if you all look like me and don’t have any of that deep expertise. Again, there’s such a strong alignment between understanding these issues and being successful.

The Chair: We’re going to move to second round, and we’re going to be as focused as we possibly can, please.

Senator Omidvar: I would like to ask a question of Mr. Fortier from ICD. In your brief, on page 8, you make a statement on diversity — nice words — and then you say much more needs to be done, but you don’t actually say what needs to be done. Can you give me your thoughts on what needs to be done in the legislation to advance those very lofty statements on diversity that you have made?

Mr. Fortier: I wouldn’t propose that more needs to be done in the legislation. What I’m referring to is that more needs to be collectively in board rooms, in organizations and by organizations such as ours. A lot of what needs to be done is socializing the positive impact of diversity. We equate diversity to innovation, and we strongly believe — and we’ve written about this and I’ve certainly read enough about it to convince me — that innovation hinges on diverse thinking.

Would I propose an amendment to the legislation? No, I don’t think so. I think that the government has got the right view on this. This is a “comply or explain” proposal. It broadens the definition of diversity beyond the conversations that we’ve had over the last few years. I’m conscious that the minister was here and talked about a three- to five-year timeline if we don’t see significant improvement. I think that probably is the right timeline. That would be a time when not just the federal government but regulators as well should revisit this and say, “If it’s not working — hopefully it is working, by the way — what other tools are in our toolkit?”

Senator Ringuette: My question is directed to Mr. Duguay. I’m puzzled by your comments with regard to sudden death and your example of the chair of the audit committee of the board. There is not only one member on the board. I don’t understand that if one director is not elected within a corporate board, all of a sudden nobody can assume a transitional role within the corporate membership.

Mr. Duguay: The audit committee example is pertinent because, when we look at a board, a board is a team, and every member has something to contribute. As we said, corporations build skills matrices that reflect many different skills that, collectively, a board should have in its individual members. It is very possible, for a board of seven directors, for example, you have three of the directors who are independent, who have financial expertise, who are part of that audit committee, and you have a chair who has been part of the board for a number of years, a well-regarded director and chairing the committee. If that particular person is not re-elected, you may not have another member on the board that has that precise skillset. Let’s refer to it in terms of financial expertise.

In finding a replacement for that director, yes, you can find a replacement, but there is not necessarily a candidate just waiting in the background to replace that particular director on a moment’s notice. We talked earlier about the need for boards to recruit forward. That means identifying directors who will eventually join the board but probably not within the next year or two because they have current commitments that they will unwind, and then they will have more time to commit to a particular board.

Really,we are talking about the risk of the immediacy of the sudden-death election, which essentially puts the board in a situation of having to resolve something that particular second because that’s really what the result is from the corporate statute.

Senator Ringuette: We have a saying in French.


The pope can be replaced.


Of course, not all the shareholders have the opportunity to vote.


Mr. Duguay: The pope can be replaced. However, there is a process to replace the pope that sometimes takes more than one day.


Mr. Fortier: I won’t get into religion, but I will say I was at an event recently in Ottawa, and I was speaking with the chair of the audit committee of a mid-cap technology company. We were talking. It was an audit committee event, and he said, “I’m on the audit committee. I’m not even a CA; I’m not a member of CPA Canada. I just have some financial literacy. The two other people are reasonably literate as well.” That could scare you a little bit, given that it’s actually fairly sizable company, but it reminds me that, if he is gone and it’s sudden death, that’s a problem for that company. Right? He’s a very good guy and I can’t imagine anybody would vote him off the board, but you just need to be mindful that it can’t happen overnight. It does take a couple of years to get “onboarded,” get to know the company and get to know the industry.

The Chair: I want to thank each of you for your extremely important contributions today. It has been very helpful to us. Your depth of knowledge, each of you, is obvious, and I think we have benefited from that. To each of you, thank you very much. We appreciate your contribution.

(The committee adjourned.)