THE STANDING SENATE COMMITTEE ON BANKING, TRADE AND COMMERCE
OTTAWA, Thursday, November 30, 2017
The Standing Senate Committee on Banking, Trade and Commerce met this day at 11:15 a.m., in camera, for the consideration of a draft agenda (future business); and 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.
Senator Carolyn Stewart Olsen (Deputy Chair) in the chair.
(The committee continued in camera.)
(The committee resumed in public.)
The Deputy Chair: Thank you, colleagues. I will repeat for the benefit of the minister and our guests that we have 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 Carolyn Stewart Olsen and I am deputy chair of this committee. I am filling in for our chair, Senator Black, who is regrettably unable to be here today.
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, was referred to our committee on November 23, 2017.
For this first meeting on Bill C-25, it is my great pleasure to welcome before us today the Honourable Navdeep Bains, P.C., M.P., Minister of Innovation, Science and Economic Development. He is accompanied by officials from the department: John Knubley, Deputy Minister; and Mark Schaan, Director General, Marketplace Framework Policy Branch.
Before you begin, Mr. Minister, I would like to introduce my colleagues on the committee, beginning on my right.
Senator Tkachuk: Senator Tkachuk.
Senator Pratte: André Pratte.
Senator Day: Joseph Day, New Brunswick.
Senator Omidvar: Ratna Omidvar, Ontario.
Senator Marwah: Sarabjit Marwah, Ontario.
Senator Wetston: Howard Wetston, Ontario.
Senator Tannas: Scott Tannas, Alberta.
Senator Unger: Betty Unger, Alberta.
Senator Downe: Percy Downe, Prince Edward Island.
Senator Maltais: Ghislain Maltais from Quebec.
Senator Wallin: Pamela Wallin, Saskatchewan.
Senator Ringuette: Pierrette Ringuette from New Brunswick.
The Deputy Chair: Thank you, colleagues.
Mr. Minister, please begin with your opening remarks, after which we’ll follow with a question and answer session.
Hon. Navdeep Bains, P.C., M.P., Minister of Innovation, Science and Economic Development: Thank you very much, chair. Before I begin, I want to take this opportunity to congratulate Senator Black. I know he’s not here. I spoke to you momentarily to pass on my best to him on becoming chair of this committee.
I want to congratulate you as well for being selected as the deputy chair. Thank you very much for stepping up today. It’s greatly appreciated.
I’ve had the pleasure of working collaboratively with members of this committee before, including the former chair, Senator Tkachuk, and former deputy chair, Senator Day. I always appreciate the insight and thoughtfulness you bring to the important work before us.
I would also like to take this opportunity to thank Senator Wetston, who has been the Senate sponsor of this very important bill. Given his considerable expertise in this area, I was absolutely thrilled when — and again no disrespect intended to Senator Harder — you accepted this task from him.
Honourable senators, I am here to outline important changes proposed in Bill C-25 and to comment on some areas that were discussed at second reading debate in the Senate.
Our government is committed to growing the economy, creating jobs, and strengthening the middle class. We want to establish a marketplace where innovation is leveraged, and where nobody is left behind.
Bill C-25 makes important adjustments to the framework laws that govern the Canadian marketplace. The proposed changes are the result of a broad public consultation process that started in 2014 under the previous government. As senators rightly noted at second reading debate, this bill is very much a non-partisan bill and represents a consensus package that has broad support amongst political parties and key stakeholders. They are targeted and will support investment and innovation without unduly burdening businesses.
The principal law being amended in this bill is the Canada Business Corporations Act, the CBCA. This statute sets out the rules that facilitate interactions amongst shareholders, directors, management and other interested parties involved in corporate decision making.
The Canada Cooperatives Act is the framework legislation for federally incorporated non-financial cooperatives.
The Canada Not-for-profit Corporations Act is the framework law for non-share capital corporations.
The Competition Act, which is part of this legislation, is a law of general application that addresses anti-competitive business conduct. It examines and seeks to redress the activities of firms that may be harming competition in the market.
Details of the proposed changes:
The bill sets out measures to modify the way corporate directors are elected in publicly traded companies.
First, it will require publicly traded federal corporations and cooperatives to hold annual votes for the election of directors. Currently, the law permits directors to hold office for up to three years before a vote is required. That’s one key, important change I want to highlight. Entrenchment of company boards can obstruct innovative thinking, and too often it prevents new and underrepresented members from a seat at the table.
Second, directors of publicly traded companies under the Canada Business Corporations Act will be elected individually, not as a slate or group of candidates.
Third, the bill will permit shareholders to vote explicitly against a candidate in uncontested elections, where the number of candidates is the same as the number of positions to be filled. The idea is to give shareholders a greater say in how companies govern themselves rather than simply accepting the only choice they are given.
There are a number of safeguards to ensure that the election process does not unduly disrupt corporate decision making, and I understand the committee may hear some more on this issue.
Additionally, Bill C-25 modernizes shareholder communications. It allows companies and cooperatives to have corporate documents accessed online rather than mailed out.
It is a welcome change to recognize the modern, digital environment that our businesses operate in. It’s about time, if you ask me. It also clarifies the deadlines for shareholder proposals at a general assembly.
The next point I want to talk about, Madam Chair, is diversity. This is a key aspect of the bill as well. All these changes are important, but the amendments that have attracted the most attention are certainly the measures to improve diversity on corporate boards and in senior management positions.
The interest generated by these amendments is justified because they represent important changes for Canada. The bill will require publicly traded corporations to disclose to their shareholders the diversity composition of their boards and senior management ranks. These measures call on corporations to tell their shareholders how they are promoting diversity at the senior leadership level.
Under-representation of certain groups in society is not only a question of fairness, it is also a question of what is good for the bottom line.
This disclosure will ensure that an open conversation between corporations and their shareholders takes place on the issue of representation on corporate boards and in senior management positions.
With this bill, our government is committed to addressing the under-representation of women, visible minorities, indigenous people, persons with disabilities and other groups in the highest levels of corporate leadership. Our government sees inclusive innovation as a Canadian value. That is why we have spent time consulting Canadians on our innovation and skills plan in order to gather ideas on how we can help position Canada as a global centre for innovation.
As the Prime Minister has often said, and it truly is our value proposition, our diversity is our strength. It is not only a social value but an economic one too. When we come together in our community, in the workplace or on boards of directors, our diversity and our experiences are what bring unique ideas to the table. Our government’s commitment to diversity allows Canadians from all walks of life to become productive members of society.
In the boardroom, as in life, multiple perspectives lead to innovative thinking and better performance. We know that innovation requires fresh ideas, new perspectives, and the best ideas can come from anyone or anywhere.
Research also shows us that leaders who embrace diversity in their organizations and give exposure to diverse voices are more often likely to have employees contribute to their full potential.
We have heard calls for the bill to include hard gender quotas for board and management positions in these amendments, or fixed targets. These are not measures that we are prepared to take at this time, and I look forward to having that conversation later on in the Q&A session. A one-size-fits-all approach in this landscape risks harming the very conditions for innovation that we are hoping to set with these updates.
We also know that progress can take time, but we will be pushing corporate Canada to rise to the challenge because we know that increased diversity, as I said before, makes sense for the bottom line and it’s good for business.
As I have said publicly, if meaningful progress is not achieved through measures contained in Bill C-25, then the government is prepared to re-examine the tools it has and, if appropriate, will consider other actions. So we are open, on a going-forward basis, but we believe we can make progress under these provisions.
What Bill C-25 is intended to do is to facilitate a conversation between corporations and those to whom they are directly accountable: their shareholders. We have faith in the business sector to show creativity and leadership on this issue.
We will follow the progress of diversity on boards and in senior management. If progress is slow, stronger measures will be considered by our government.
The legislation establishes that corporations must report on diversity as well. The regulations that would follow passage of the bill would ensure that publicly traded companies that are federally incorporated disclose figures on diversity among their boards of directors and senior management. They would also disclose the nature of their policies to encourage diversity. If they have no such policy, they would have to explain to their shareholders why not.
We know that the Employment Equity Act is a necessary starting point in thinking and reporting on diversity. The four designated groups specifically mentioned in the regulations would be women, people with disabilities, indigenous peoples, and visible minorities.
We also recognize that in order to monitor progress with respect to diversity in corporate boards and senior management positions, statistics must be made available. I had a great conversation yesterday before the Senate committee, talking about modernizing the Statistics Act and the importance of reinforcing its independence. Hopefully that continues on with corporate Canada as well.
So to follow the intent of the bill, the regulations would need to prescribe information required by Corporations Canada to ensure transparency of information. We believe this is the necessary guidance corporations are looking for to approach diversity, without specifically defining it.
The employment equity groups would be the starting point, while still leaving room for other important forms of diversity, be it in the form of region, culture, sexual orientation, economic status or lived experience. With this data, we can inform the public debate, allowing for a richer, more evidence-based discussion between shareholders and the management and directors of corporations but also with Canadians.
In conclusion, the changes that we are proposing will allow Canada’s framework laws to better reflect modern ways of doing business and make it easier for companies to grow and succeed.
It will also help to position businesses for the future as the marketplace evolves in the global, knowledge-based economy.
Again, I would like to thank the senators for your thoughtful consideration, and I look forward to receiving your feedback on this very important legislation. Thank you very much.
The Deputy Chair: Thank you, minister.
We’ll begin our question-and-answer session, but I will try to set a few ground rules, if you wouldn’t mind. I would like to start with the sponsor of the legislation, Senator Wetston. Our critic is not here today, so then we’ll go into the regular round of questioning.
I would ask that colleagues keep their questions tight and avoid long preambles. We have a fairly large group here, and I would like to ensure that everyone who wants to ask a question of the minister is able to do so. If you have supplementary points on other members’ questions, I would ask you to hold them for the second round.
Senator Wetston, please begin.
Senator Wetston: Thank you, minister. I’d like to ask you a question about majority voting. There’s been some suggestion that a one-year annual election would occur, relative to the three-year provision which presently is in the CBCA. If you could, I’d like you to provide a bit more information as to the rationale for the one-year versus the three-year.
Mr. Bains: Thank you very much again for your leadership in this area, and thank you very much for the question.
One key aspect of the benefits associated with annual elections is to the point around diversity. If we want to see changes in directors and we want to see better diversity reflected, we want to ensure corporations have the opportunity to do so on an annual basis as opposed to waiting for three years. That’s one key element of it as well.
Overall, as you know, the objective of this bill is to increase shareholder democracy and participation. If they have annual meetings, the shareholders will be more engaged, and they will be more engaged with the selection of the directors as well. This is good for shareholders, and we believe this is good for promoting more diversity and holding directors to account.
Senator Wetston: I’d like to pursue the other part, which I think has raised a number of discussions on diversity.
There’s been considerable discussion — and I know the department and you have done a lot of research on this issue — looking at the “comply or explain” approach, which you’ve adopted and which I agree with. You’ve also examined the issue of targets and you’ve looked at the issue of quotas. There has been considerable research, and a great deal of effort has gone into this globally.
Looking at what’s been occurring in Canada and at the various ways in which you can approach the diversity issue, I think you appreciate very well that most of the literature, research and analysis has been around gender diversity and has not been broadened to the broader aspect of diversity reflected in your bill. I wonder if you could, once again, assist me in terms of the rationale for going beyond that of gender diversity and broadening the application of the bill to diversity more generally.
Mr. Bains: Thank you for that question. There’s no real common definition of diversity. People have different points of view. Fundamentally, from my point of view, it’s diversity of thought, perspectives and ideas, as I mentioned in my remarks.
We believe, obviously, that having more women on boards is important, and I can tell you why. Forty-eight per cent of our workforce are women and they represent only 13.1 per cent of the board positions. We’re trying to solve a problem. We want better reflection of our society where decisions are made. Not only is this a matter of fairness, but this is good for the corporation and good for the bottom line as well.
We felt that we wanted to go beyond that. We’ve used the Employment Equity Act — and I’ve described other dimensions to diversity with respect to visible minorities, persons with disabilities, indigenous communities — to give guidance to corporations. Then I mentioned other dimensions around regions, sexual orientation, et cetera. It’s much broader than lived experiences. By having that perspective, we feel that it will encourage companies to be more thoughtful when they develop their diversity policies. More important, they will be encouraged to collect data as well so they can track and monitor their progress.
Senator Maltais: Good morning, Mr. Minister. Of course, Bill C-25 makes many changes that are necessary and appreciated. In the section on financial cooperatives, there has been a lot of discussion about banks refusing to designate credit unions as entities providing “banking services”. Did you issue that directive, Mr. Minister, or was it the commissioner?
Mr. Bains: I’m sorry, I have a problem with my interpretation device. It’s okay. Please continue.
Senator Maltais: The financial services commissioner appeared before us and told us about the directives he was about to adopt, including the idea that institutions such as loan cooperatives, credit unions will no longer be called “banking services”. This seems to be causing problems for those institutions. Does the directive come from your department or simply from the financial services commissioner?
Mr. Bains: That’s a good question, senator. We have to confirm that with the Minister of Finance, who is responsible for this directive.
Senator Maltais: So the Minister of Finance makes the decision?
Mr. Bains: Since the Minister of Finance is responsible, he is the one who can confirm the change.
Senator Maltais: So, we are counting on you to have the minister confirm the change.
Senator Downe: I’m wondering how the government is doing on diversity. In the 1993 election, the Liberal Party promised, and then implemented when they took power, that they would make appointments with priority in four identifiable groups, some of which you named -- women, the physically challenged, Aboriginal and visible minorities -- all of whom had a lower participation rate than the labour market participation rate, which was a benchmark. Quarterly reports were prepared and made public, and all those objectives were achieved except the physically challenged.
How is the current government doing, and do they make the information public on their own board appointments?
Mr. Bains: Great question. If we want corporate Canada to step up, we have to demonstrate leadership. As you know, when Prime Minister Trudeau formed the government in 2015, one of the first things that stood out from the cabinet that was selected was the 50/50 representation of both men and women and diversity more broadly as well in terms of regions that were represented, different perspectives and backgrounds.
Clearly, we’re not there across the board. I can speak to my own specific examples for the different organizations I’m responsible for.
Senator Downe: Not to cut you off, minister, but the government has up to 3,000 Governor-in-Council appointments. Do they make the information public on the targets they’ve identified and how they’re achieving them?
Mr. Bains: We don’t have any specific targets that we put forward except for the fact that we want to see greater diversity. You’re seeing that reflected in the appointments that are being made and are made public, and that information is public as well. As the appointments become available you clearly see the diversity reflected. You’re seeing more women, more people who are visible minorities, et cetera, reflected in these positions.
Senator Downe: But if you don’t have a benchmark — the labour market participation is normally the benchmark — how do you know you’re doing better?
Mr. Bains: Better than the starting point, sir. The starting point is pretty low. If you look at the current board positions, visible minorities are underrepresented, women are underrepresented and so that’s our baseline. The starting point is the current board positions that exist. From there we’re trying to make significant improvements, and that’s where you’re seeing significant improvements. We don’t have any specific quotas or targets.
Senator Downe: How do you measure it if you don’t have a benchmark? The benchmark is that there’s low participation, but it would seem to me the basic benchmark is the labour market participation for the various groups and you try to at least obtain that.
Mr. Bains: Of course. I said that in my remarks as well.
Senator Downe: Are you making that public?
Mr. Bains: Making what public, sir?
Senator Downe: Your success in doing that.
Mr. Bains: Of course, we are. Absolutely all the points I made are public. Sorry, I misunderstood the question.
Yes, we want our appointments to reflect society; yes, the information is made public; and yes, we’re making improvements.
Senator Downe: You make the percentages public?
Mr. Bains: All the data is made public.
Senator Wallin: I want to follow up on the point about the one-year votes, the annual elections. I’m a bit of a reluctant recruit to that issue. The sponsor and I have spoken about it.
You have made the point that there will be no slates allowed and you can challenge uncontested seats, so you’re actually getting shareholder democracy there. But change isn’t always about diversity, which is what you say is the justification for this. Sometimes shareholders are motivated by other issues, like a stock move, for example.
What else are you going to do, short of quotas or other issues like that, for which there is a lot of resistance still?
Mr. Bains: I think the “comply or explain” model, the rationale behind that, is very simple. If you look at the Australia experience or the U.K., the number of women, for example, as a starting point has doubled in a five-year period based on the “comply or explain” model. So there has been some international success based on this particular proposal.
The idea also is if you have shareholders more engaged, they will see that diversity is actually good for the business. It’s good for the bottom line as well.
You’re right: The motivation is simply not a matter of social justice or fairness; it’s also actually good for the bottom line as well.
What will happen is if there are shareholders and they see their peer companies or competitors investing in diversity and getting better outcomes, they will also want to see those results reflected on their boards. That’s what we believe will be the ultimate determination of changing behaviour. People will see the benefits of diversity beyond simply an issue of social justice or fairness or equity.
Senator Wallin: But is that a separate issue from the annual elections versus three-year.
Mr. Bains: The annual election is designed, as I mentioned earlier, to encourage more shareholder participation and more opportunities of people with diverse backgrounds to participate. Some of the feedback we received is, “Okay, we can make changes, but it will take some time,” because by the time a certain person is renewed for a couple of terms, that could be up to six years. And by the time you have the first opportunity to really reflect on changing the board composition in a meaningful way, it can be three to six years depending on how the terms are set out. We want to change that and make it more annual. That’s one of the reasons why.
Senator Ringuette: You indicated to us that you will be monitoring and reviewing the regulation and the legislation. What’s your time frame for that to occur?
Mr. Bains: I would say three to five years. If we don’t see meaningful progress, we’ll have to re-evaluate what else we have in our toolkit to be able to move the needle.
Senator Pratte: We see in the latest data on the number of women on boards that companies that have set targets have much better results than companies that did not set targets for themselves. I understand the hesitation certainly to go with quotas or to impose targets on companies because the diversity of situations is great, but would it be possible for the government to at least require companies to set targets without telling companies what the targets should be? Requiring in the law that companies do set targets?
Mr. Bains: I think that will be part of the diversity policy as they explain their plan to their shareholders. Clearly they need data and clearly they need goals. I am very confident that it will be part of the discussion that will take place with the shareholders and the policies that are reflected.
The problem is very severe. To put things in context, 59 per cent still have no written policies on diversity. I’m talking about boards. We assume this is common sense but the numbers are astonishing. Forty-five per cent of the listed companies do not even have a woman on their board. The problem is severe, but we’re confident that our approach will demonstrate meaningful progress.
The other challenge around targets or quotas is if you have one target, and let’s take a quota of 50 per cent, then the focus of a company, in my opinion, and I could be wrong, is that they’re focused on just achieving that 50 per cent for women. But in that conversation they don’t focus on indigenous people; they may not focus on visible minorities. It becomes an either/or proposition. That’s how we expanded the definition of diversity in saying women are a key part. We want to see more women, for example, but we also want to see diversity of other prospective representatives as well.
If you look at the quotas and targets in other regions, unfortunately they are replicating some of the same problems. The women’s situation may improve but visible minorities don’t get better and the situation with people with disabilities doesn’t get better. So how do we also incorporate that as well? That’s why we’ve taken a broader approach.
To answer your question more directly, I’m confident that by having a marketplace framework where companies compete against each other for diversity policies, they will start to very quickly articulate their plans with targets.
Senator Tkachuk: Does the board of directors represent the shareholders on the question of diversity, or do they represent the country? Coupled with that, do you think that the directors should hold shares in that company?
Mr. Bains: In my opinion, the directors represent the shareholders, very clearly. They are accountable to the shareholders and have to address the concerns of the shareholders.
Senator Tkachuk: I don’t know if there is any research on it, but where women are CEOs, are board members more reflective of gender diversity? Are there more women on those boards?
Mr. Bains: That is a good question. I will have to get back to you with that data.
If you don’t mind me asking, why do you pose that question, senator?
Senator Tkachuk: I am just asking a question.
Mr. Bains: I was thinking it was a correlation you were trying figure out.
Senator Tkachuk: I am not trying to develop a correlation there, but there may be one that I am not aware of. When you figure out the answer, then maybe that would be helpful.
Mr. Bains: Absolutely. We are a data-driven government.
Mark, do we have data on that?
Mark Schaan, Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada: We look at the number of firms that are led by women, but the data is usually aggregated in such a way that you would have to go firm by firm to figure out there whether those firms have more women on their boards.
We know that companies that take a broad approach to diversity have better outcomes and tend to elicit greater productivity out of their staff, which usually is a function of drawing on their diversity.
Senator Tkachuk: Is that board or employee diversity you are talking about?
Mr. Schaan: Both.
Mr. Bains: Both senior management and at the board level. We will do our best to obtain that data. As you can see, the challenges are very much at a firm-by-firm level. So I have a bit of homework to do.
Senator Tkachuk: That’s fine.
Senator Day: I have two questions, and maybe we can tie them together.
You talked about documents being accessible online, and you welcome the change to recognize modern digital technology. Are there any other obvious points that you wanted to bring to our attention in relation to the digital world nowadays and, in particular, with respect to the annual general meeting and access to that?
Mr. Bains: Mark can speak to the details of the technical amendments, but the bottom line is it was interesting that, based on the current laws that existed, it required a lot of paper. That slowed the process and is a challenge now because people interact digitally and prefer getting information online and bringing a tablet to a board meeting. It was just about modernizing the processes and making changes to reflect modern ways of communicating. Many private corporations have pursued that.
When I sat on boards I never brought in binders; everything was on a tablet. Information was provided through the portals and via email. That is what it really reflects.
If there are any other technical amendments, Mark can speak to them.
Mr. Schaan: The CBCA does require corporations to be able to have a physical location for the annual general meeting but does not preclude people being able to have others participate through other means. So we have enabled the digital environment while still allowing shareholders to where it is they want to show up and cast their vote should they wish to do so.
Senator Marwah: Thank you, minister, for being here. I congratulate you on all these changes to the CBCA. I think it’s long overdue, and I think it would be fair to say that all the changes fall under the umbrella of good governance.
One of the other key elements of good governance is the establishment of an independent chair. Separating duties between the CEO and a chair can independently reflect the shareholders. Is there any particular reason why you shied away from that in this round of changes? Was it too radical a step?
I understand that this will take time and that a longer transition period will be required as you execute this over years, and there may be some exceptions for privately controlled corporations. An independent chair also seems quite a fundamental part of good governance. Is there any particular reason you shied away from it? Would you be open to that?
Mr. Bains: You are absolutely right. When it comes to good governance, Canada can play a leadership role. This is a challenge we see globally with a lot of companies right now. We have seen this problem in the past, where good governance is critical in terms of the impacts it has on the economy. When there are multiple bad actors and bad companies, it has an enormously negative consequence on many employees and so forth.
We are proud of the fact that we have made these changes, and we will continue to play an international leadership role in this area.
With regard to independent chairs on boards, we felt that at this time it would be too prescriptive and interventionist. We feel there is a fair amount of work being done at the board level to understand the importance of the selection of the chair and it being independent. We are seeing some of the progress in that area. We are not sure that problem is as acute in Canada, hence why we didn’t put in changes to that effect.
Senator Unger: Thank you, minister.
I will start off by saying that as a woman I have problems with this legislation. Are women actively seeking to become board members? If so, do you have any statistics on that? That would apply to all of the groups that you have identified.
In Alberta, the “comply or explain” requirement has been in place for almost a year, and many shareholders in Alberta were not impressed with it. They feel that people invest in corporations to get a return on their investment, and this is best accomplished by appointing merit-based people to boards. Could you comment on that?
Mr. Bains: I respectfully disagree with you on the last point. When you say “merit-based appointments,” the impression is that somehow women may not be qualified. That may not be the point that you made, but that is how I interpreted it.
To the first point you raised as to whether there are women in senior management positions and women qualified to sit on boards, I would say absolutely; no doubt. If you look at the Institute of Corporate Directors, they have a pipeline of hundreds of highly qualified women who are actively seeking opportunities to sit on boards.
As you know, this bill is trying to fundamentally change the culture at the board level. There is a culture where you have an exclusive club whom you go to work with, hang out with, play sports with and, potentially, whom you socialize with. Traditionally that is how boards were composed. We are trying to break away from that, first, because it does not reflect society; second, it is not good for the business; and, third, we have talent that is willing and wants to participate.
So the answer to your question is yes, there are qualified women in the pipeline, and they are actively seeking it.
This is a consensus package. We have been actively engaged since 2014. The previous government started this process, and we continued on with it.
These changes reflect the consensus we heard across the country and from different organizations. If you like, I can take you through some examples of those.
These changes were long overdue. The last time changes to this act were made was in 2001, and a lot has changed since then. We have talked about technology, and we have also talked about society and the fact that the numbers are very daunting. As I mentioned, only 13 per cent of women hold board positions, and only 19.1 per cent on financial 500 companies. These are successful financial companies that have a good brand, good name recognition, and they only have 20 per cent of women on their boards. Clearly there was a problem, and we wanted to solve it. That is why we put forward these proposals.
Senator Unger: As a woman — and, as you can see, I am not young — I could never feel good about myself if I knew that I got a position simply because I am a woman.
Mr. Bains: That is why we are promoting policies and changing culture, mentoring opportunities and breaking down barriers as opposed to a fixed target.
Senator Tannas: Thank you, minister, for being here.
You spoke about the 13 per cent as it exists today. We hear about two sets of numbers. We hear about the number of women on boards today, but the number that rarely gets talked about is the progressive number: vacancies and what the number of women is on vacancies as they come available.
My understanding is that Watson Wyatt tracks this and that the TSX is 40 per cent.
Those of us in business might all think it absurd if we were at a board meeting, and the CEO or the chair said, “Bob, we’re sorry. We love you and you are making a great contribution — there is no problem at all — but we have to move you off and get a woman in your place.” That is the kind of scenario that makes everyone’s hair light on fire, right?
I want to come back to this: When you are looking at the next set of tools, which will have those kinds of crazy things happening if you have to go to that next level, what will you be looking at for positive or negative results when you say, “Do I need to up the stakes here?” I would suggest to you — and I hope your answer is — that you will be looking at the vacancy rate. As people come off, then the transition is being made.
I am on boards. We are in the process of trying to develop our diversity statements. Do we talk about it in terms of next year we must have this done, or is it as we transition people out, as they retire and come to the end of their “useful life” on a board? In senior management, we can’t go tapping people on the shoulders mid-career and say, “Sorry, your time is done and we need somebody different in here to tick the boxes.”
Will you be looking at new appointments as the barometer of progress as opposed to this 13 per cent number and “Oh, maybe next year it’s 15, and that’s no good”? If you looked at it in the other way, it would be far more encouraging.
Mr. Bains: Succession planning is something boards are very mindful of. You gave the scenario of someone telling Bob he’s doing a good job but he has to go. I can think of a scenario that is, “Bob, you have been on the board for 20 years and I think it is time for change.”
It depends on perspective. I can tell you too often there is a “Bob, you have been there for 20 years” and then there is “Bob, we have to let you go because we have to let a woman in.” I think that is the exception. I have rarely heard that. That is not the case, but I know of many examples of Bob and others who have been on the board for so long that it’s not good for their personal growth or the company. I think its shareholders would want better.
Senator Omidvar: Thank you for being here, minister.
We know Canada’s reputation as a leader on good governance and we know Canada’s reputation on diversity, but we are not a leader on diversity in governance. I was happy to see you clarify in your remarks that you have embraced the definitions of employment equity in the regulations. But employment equity and its definitions are in legislation.
As we move toward governance equity, I’m curious why we wouldn’t consider the same path, tried and true, because when employment equity was called into life sometime in the 1970s, it was heavily contested then. Look how, in 30 years, we have moved the needle. It has taken time, but we have moved the needle because it is in the legislation.
Why wouldn’t we follow that same path and embed the definitions in legislation, with some flexibility, so that they stand the test of time and so that they can’t be interfered with lightly?
Mr. Bains: Again, thank you very much for your question and all the work you have done on diversity. I had the privilege of working with you on diversity in the past at Ryerson, and I know you have done a lot of work in this area prior to that. Your expertise and feedback is greatly appreciated.
You are right that on governance we want to be a global leader. We are not there yet, but we take pride in our diversity, so we have the potential. This is a focus of our government. Diversity is not only good for business, but it’s good for innovation, as I said in my remarks. We want to be a global leader in innovation as well.
With regard to the Employment Equity Act, we already have that in legislation. To put in another piece of legislation would be repetitive. That’s point one.
Point two is that we want to put it forward in regulations to demonstrate guidance to corporations. As mentioned earlier, it goes beyond that; we want to go beyond the aspect and dimension of women. As I articulated, if you simply focus on one aspect of diversity, it might be at the exclusion of others. That is why we said, as a starting point and to give guidance, refer to the employment equity legislation. But we will put that in regulation in terms of the guidance that is consistent in the Employment Equity Act around women, visible minorities, indigenous peoples and persons with disabilities.
The Deputy Chair: We will go to the second round. We have 15 minutes left.
Mr. Bains: I will try to be more concise.
The Deputy Chair: Thank you.
Senator Wetston: It is a bit challenging to do this, Mr. Minister, but I will try to put a question to you on corporate governance. I believe the IMF has already indicated that Canada is a leader in corporate governance globally, even prior to this potential statutory change.
I will try to put this in context. The TSX is an important exchange on which not all the distributing companies are CBCA corporations, but there are many very large ones on the TSX. With respect to majority voting, the TSX already requires annual elections and majority voting for all companies.
This statute will require majority voting and annual elections. One of the best rationales for that is to avoid any staggered boards in Canada, which are frankly not permitted by way of TSX-listed companies at this time. But it does create a bit of fragmentation, because we have 13 corporate statutes in Canada — it’s 14 if you include the CBCA. I never get the number right.
Mr. Bains: Welcome to the federation.
Senator Wetston: Right. It is the federation I wanted to raise with you.
While you move ahead with this bill, which I support, we must be mindful of the fact that the bill will not apply to a large number of corporations. That would mean — and I say this with some confidence — that all of the TSX companies that are reporting issuers in provinces that have adopted “comply or explain” are already responsible for that commitment to that instrument.
Let us assume that quotas were adopted. If I make that assumption, you would be creating an awkward situation in Canada where you would have quotas for CBCA corporations and no —
The Deputy Chair: Senator Wetston, if you would get to the question.
Senator Wetston: It is an important question, Madam Chair.
My point is that it creates an awkward situation if one were to adopt a regime involving diversity that is quite different as between CBCA corps and other corporations. Do you have any comments on that?
Mr. Bains: I agree with your assessment that it would create challenges. If we do pursue a quota or targeted approach, it would be inconsistent with what the provinces are doing.
To put some numbers in context that reflect the scope of this legislation, if 310,000 CBCA corporations exist, they represent only 10 per cent of all Canadian corporations. On the TSX, they represent 40 per cent; 600 out of the 1,500 possible companies.
We need to be mindful of the scope of what we are trying to deal with here is simply at the federal level and only represents 10 per cent of the companies.
Senator Downe: Overseas tax evasion, as you know, is a major issue, minister. One of the problems is identification of beneficial ownership. Is the government doing anything on that?
Mr. Bains: Yes, my colleague the Minister of Finance will be meeting with his provincial counterparts next week to discuss that.
Senator Tkachuk: You talked a number of times, minister, about the conclusion that diversity means better performance. Could you table some of those studies? I have heard about those studies, but academic studies out of the Wharton management school, Stanford and other universities say there is no better performance; there is no worse performance, but there is no better performance. It is fairly static. I would like to see a page or half a page of the studies that you are using to back up your claims that diversity improves performance so that we can have a look and read them ourselves.
Mr. Bains: Sure. There are many bodies. I will be very selective of the ones that highlight my point of view.
There was a study in 2017 done by McKinsey, The power of parity: Advancing women’s equality in Canada, for example. There are many studies. It reported that advancing women’s equality in Canada has the potential to add $150 billion incremental to our GDP, which is 0.6 per cent.
Another study done by them shows that female leadership generated return on equity of 10.1 per cent per year compared to 7.4 per cent for those without such leadership roles reflecting diversity. We would be more than glad to share those studies with you.
Senator Tkachuk: I would like to see them, if you could send them to the clerk.
Mr. Bains: Absolutely.
Senator Pratte: Securities administrators put in place a “comply or explain” regime three years ago, and statistics show that progress has been desperately slow as far as women on boards are concerned. I am not sure I understand what justifies your confidence that exactly the same system will work for over the next three, four or five years.
Mr. Bains: That is a very good point. We studied and looked at that data very carefully, but we also looked at the U.K. and Australia experiences as well. It is not 100 per cent that we are confident this will give the desired outcomes, but we are confident that this will have a meaningful impact based on multiple jurisdictions. As I said, three to five years from now if we do not see meaningful progress, we will re-examine other tools that we have in our tool box.
Senator Day: Minister, I heard your comments in relation to the diversity report that you are looking for on an annual basis, presumably filed electronically, which ties my two questions together.
Can you help me understand? You are asking us, as lawmakers, to delegate the authority to the executive to make regulations in relation to a lot of this. You want policies to explain to shareholders and stakeholders. You talked about making this public and that that would bring pressure to bear on the company. However, to what extent do you anticipate sanctions? To what extent do you anticipate government review of these reports to determine whether they satisfy you?
Mr. Bains: Again, we have created a “comply or explain” model. The idea is if a company or executive does not have a diversity policy, they need to explain to their shareholders why not. That is one challenge function that exists in the system.
Second, most likely, based on the studies and on our experiences, if companies don’t have diversity policies and their peer groups or competitors do and they are performing better, shareholders will demand change. The idea behind the “comply or explain” model is for the shareholders to demand better of their executive and to hold them accountable.
There is no government intervention; there are no sanctions. There is no mechanism we have to force. We are saying that you should have a policy and if you don’t, you need to explain to your shareholders why not. But that is the extent of our intervention.
Senator Omidvar: Minister, will you consider rolling up the information and the reports that you get on diversity and putting out an annual report from the Government of Canada on performance and diversity in an aggregate form?
Mr. Bains: I will follow up on that and see how we can do that. We have different reporting mechanisms, as you know. We have mandate letters and we are reporting on that. We made that information public. We will look at how we can provide information that can be easily understood by Canadians. That may be the challenge you are referring to.
The Deputy Chair: Thank you, Mr. Minister, Mr. Knubley and Mr. Schaan.
Thank you, colleagues, for your questioning and for letting everyone ask a question and get to a second round. It is appreciated.
(The committee adjourned.)