Bill C-25 (Historical)

An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act

Part 1 amends the Canada Business Corporations Act, the Canada Cooperatives Act and the Canada Not-for-profit Corporations Act to, among other things,
(a) reform some aspects of the process for electing directors of certain corporations and cooperatives;
(b) modernize communications between corporations or cooperatives and their shareholders or members;
(c) clarify that corporations and cooperatives are prohibited from issuing share certificates and warrants, in bearer form; and
(d) require certain corporations to place before the shareholders, at every annual meeting, information respecting diversity among directors and the members of senior management.
Part 2 amends the Competition Act to expand the concept of affiliation to a broader range of business organizations.

[Professor Aaron Dhir, Associate Professor, Osgoode Hall Law School, York University]

Thank you, Mr. Chair.

I'm grateful to the committee for the invitation to join you this morning. It's an honour to appear and to share my thoughts on the bill, in particular on the aspects that relate to diversity in the boardroom and the executive suite.

By way of background, I am a law professor at Osgoode Hall Law School and currently a visiting professor at Columbia Law School. I teach and research in the areas of corporate law and corporate governance. Over the last several years, I have focused my scholarly work on the topic of regulatory approaches to diversifying corporate governance.

In my recent book, titled Challenging Boardroom Homogeneity, I study the two main forms of regulation that have been adopted internationally: quotas, which require specific degrees of gender balance in boardrooms, and disclosure regimes, which ask firms to report on diversity levels and practices.

Bill C-25, as we know, proposes the latter, a disclosure-based approach. The need for government intervention in this space is pressing. Using gender as an example, as both Matthew and Tanya have mentioned, the CSA released a report just last year after surveying 677 issuers listed on the TSX. They found that women hold only 12% of these companies' board seats, and that was an increase of just 1% from the previous year. Strikingly, 45% of issuers had no women at all on their boards.

The reality is that in Canada we currently trail a number of other developed economies. With that context in mind, I'd like to offer thoughts on what, in my view, the bill does well and what can be improved.

What does the bill do well? The bill and the draft regulations, as we know, import into the CBCA disclosure requirements that have already been in place for just over two years in most jurisdictions under provincial securities regulation. The bill would require all CBCA distributing companies to report on the gender composition of their boards and their management teams, and on the details of their diversity policies and considerations. All of this would be done on a comply or explain basis. This is certainly a positive development.

In the course of writing my book, I reviewed every diversity-related disclosure provision that exists internationally. In my view, the current rule is certainly among the best, both in terms of the level of information that it requires and in terms of its focus, which is the entire governance ecosystem of the board and the executive suite, not just the board in isolation.

The proposed regulations then go a step further than the existing rule by also requiring companies to report on forms of diversity other than gender. This development has the potential to be an improvement on the rule currently in effect, and that leads me to how the bill can be improved. I have two suggestions.

First, I'd like to return to the conversation that took place in the committee on Tuesday when Minister Bains appeared. During a very thoughtful set of exchanges, both Mr. Masse and Mr. Arya emphasized the importance of defining “diversity”. In Mr. Masse's comments, there was a skepticism that “market forces” alone can be relied on to reach the legislation's goals. I support these sentiments.

As it stands, the draft regulations do not define the term “diversity” other than gender, and that, in my view, is a serious omission.

Why do I say that? In 2010 a diversity disclosure rule went into effect in the United States. Under it, the U.S. Securities and Exchange Commission requires publicly traded companies to report on whether they consider diversity in director appointments, and if so, how, but the SEC made the conscious decision not to define the term “diversity”. Similar to Minister Bains' comments on Tuesday, the SEC reasoned that diversity can mean many different things and that companies should be given maximum flexibility to express their commitment to diversity in the broadest sense possible.

How did corporate America respond? In my book, I analyzed the disclosures that the S&P 100 submitted to the SEC during the first four years of the rule. My most striking finding is this. While almost all companies complied with the rule by disclosing that they do consider diversity, only about half actually define diversity in terms of gender, race, or ethnicity. Firms, when defining diversity without sufficient regulatory guidance, prefer to focus on a director's prior experience or skills, rather than his or her socio-demographic characteristics.

Minister Bains expressed the view that diversity isn't about checking a set of boxes, that it goes beyond traditional identity-based factors. I understand this view, but I would also like to invite the committee to think about it another way. It need not be an either-or situation. It's entirely feasible to allow companies to discuss diversity in the broadest sense, while at the same time making it clear that disclosures must also include information on identity-based characteristics, such as race, ethnicity, indigeneity, and so on.

A definition of diversity could be drawn from existing federal sources, such as the Employment Equity Act or human rights legislation.

Of course, gender equality is of the utmost importance, and we must move beyond Canada's male-dominated leadership structures. At the same time we have an opportunity to consider the importance of a more holistic diversity, a diversity that includes other characteristics, and this is particularly important given current demographic trends. For example, the city of Toronto is home to more head offices of the leading 500 revenue-generating firms than any other large Canadian metropolitan area.

To use the term of current federal legislation, Toronto is comprised of almost 50% visible minorities, and Statistics Canada projects that groups falling into this category will make up to 63% of Toronto's population by 2031. Yet a recent study by the Canadian Board Diversity Council suggests that the percentage of directors from racialized groups is actually decreasing as compared with previous years, with these persons occupying just 4.5 % of board seats in the FP 500. Can it really be that in a population the size of Toronto's there is such a dearth of qualified racialized candidates?

My second suggestion relates to the importance of data collection and monitoring. If a goal of C-25 is to diversify corporate leadership, we cannot assume that the passage of a disclosure rule, in and of itself, will necessarily achieve this objective. If the provision passes, we should think of it as more of a working hypothesis than a foregone conclusion.

On that front, it is essential that the federal government monitor the disclosures and the explanations, and that it work with other agencies, such as the provincial securities commissions, to track levels of representation year over year.

I want to return to that CSA study from last fall. As we've heard, the number of women on boards increased from 11% to 12%, and only 21% of issuers reported having a policy on the nomination of women directors. At first, those numbers didn't surprise me. I thought to myself that issuers reasonably need time to adjust to the new rule and the information that it requires, and also, there's a waiting game. Since only about 20% of firms have director term limits, women won't have the opportunity to join boards until existing directors retire.

But then, the chair of the OSC announced that in fact 521 board seats had become available in the previous year, and just 15% of those vacancies, i.e., 76 seats, were filled by women. That is a troubling statistic, and we have to ask ourselves why the numbers are as they are.

Social science research tells us that we all have a tendency toward unconscious bias, in particular the assumption that men are more effective leaders than women. The work that we're asking the law to do here is really to help shift existing social norms and biases, but the law's ability to do this depends on how strong the existing norms and biases are. In this case, they are deeply entrenched, and it may be the case that for the law to be effective in shifting norms, the law itself has to be equally potent.

That is why, while I certainly support tracking the data, and allowing the comply or explain regime the time to work, I also think that the government has to at least begin a conversation on the potential use of more prescriptive forms of regulation, while being mindful of the fact that they may soon become necessary.

Those are my thoughts, and I really look forward to your questions. Thanks so much.

[Tanya van Biesen, Executive Director, Catalyst Canada Inc.]

Thank you, Mr. Chair and committee members. It's a distinct honour for me to be here today to represent Catalyst Canada.

Our goal as a non-profit organization is to help businesses around the world to build workplaces in which women and men of all backgrounds have equal opportunities to succeed. I'll be focusing my remarks from the perspective of working with organizations to close the worldwide gender gap in leadership, wages, and opportunity. I do so in the hopes of providing further context for your deliberations on Bill C-25 and specifically addressing the section of part 1, requiring corporations to provide information respecting diversity among directors and their members of senior management as it pertains to women's representation on boards and in senior leadership.

Let me start with a very simple point. What's good for women is good for business. I say this because the issue of gender parity on boards is driven not simply by questions of fairness and equity. This is an issue that speaks directly to Canada's ability to compete and flourish in a global economy. How effectively Canadian businesses leverage diverse talent, starting with women, will be critical to our long-term competitiveness. Achieving gender balance on boards and throughout the executive ranks is widely recognized as a global economic imperative. Furthermore, there's a strong business case for having more women on boards and in senior leadership. Study after study has shown that having more women on boards and in senior leadership on average improves organizations' overall financial performance, enables them to better serve their customers, and allows innovation to flourish. Research from Catalyst and the Harvard Business School has found that companies with more women in leadership also tend to have a stronger commitment to corporate social responsibility.

There's some good news around the issue of women's representation on boards. It's fair to say that the conversation about women on boards in Canada has shifted in an encouraging direction in recent years. The dialogue no longer focuses on why we need more women at the table, but rather how we can accelerate progress. Furthermore, the introduction of “comply or explain” securities law rule amendments, which have now been adopted by almost all jurisdictions across Canada, and the introduction of the legislation we are discussing today are positive, encouraging, and exciting steps forward.

The issue is firmly on the radar. However, the reality is that we are still a long way from reaching parity, which is the ultimate goal. Unfortunately, the pace of change continues to be frustratingly slow. For example, the Canadian Securities Administrators' recent review of comply or explain showed little or no progress for women on boards and in senior leadership positions. It found that only a small percentage of companies had adopted written policies for improving diversity on boards, and it showed that almost half, 47% to be specific, of all TSX-listed issuers have zero women on their boards.

Additionally, as recently as last October the Washington-based Peterson Institute for International Economics reported that men still hold 86% of executive positions in Canada and 93% of board seats. Clearly work remains to be done.

Turning to the “how” with regard to advancing women into leadership positions, the central question to consider is what instruments will most effectively bring about change? Catalyst Canada research suggests that more than a decade of raising awareness, leadership for many prominent business leaders and organizations, and women knocking on the doors of boardrooms have had little impact. Bold action is required to accelerate progress for women on boards. Governments and businesses continue to engage in discussions about the best way to increase women's representation on boards. Around the world there are numerous efforts taking place, from legislative quotas to regulatory actions to voluntary pledges or targets initiated by companies.

Our recent report entitled “Gender Diversity On Boards In Canada: Recommendations For Accelerating Progress”, which was commissioned by the Government of Ontario, looked at the various approaches and their effectiveness. The experience of Norway, which implemented gender quotas for board directors in 2003, tells us that legislative quotas have definitely moved the needle in that country. Other countries, including the United Kingdom and Australia, have chosen mandatory disclosure and transparency in diversity policies for public companies similar to what the bill we are discussing today puts in play. In Australia women's representation shot up from 10.7% in 2010 to 22.7% in 2016, and women comprised 34% of new appointments to ASX 200 boards in 2015.

In the U.K. women's representation on FTSE 100 boards has more than doubled from 12.5% in 2011 to 26.1% in 2015. Thus, these types of policies are certainly an option or interim step for Canada to consider, eliminating protracted debates about the issue of quotas and focusing instead on the policies, practices, and outcomes of the board selection process.

Ultimately, Catalyst believes there's no one right way to accelerate progress for women on boards. What matters is intentional action and the commitment to setting goals and making change. That's why in the same report I just cited, we made 11 recommendations for companies, business leaders, and governments to drive change.

Among these are that TSX-listed issuers set 30% targets for women board directors by 2017 and achieve them within three to five years, that they use at least one mechanism to facilitate board renewal, and that they establish written policies to increase the representation of women on boards. Also, we recommend that governments reinforce the setting of the targets, renewal mechanisms, and written policies; that they track and publish progress; and that they set a minimum goal of 40% for their own agencies, boards, commissions, and crown corporations. In addition, Catalyst recommends that more stringent legislative or regulatory approaches be considered if progress is not made, particularly toward the 30% target.

These recommendations are based on the following. First is the new five-year historical trend data conducted in partnership with the Rotman School of Management, which shows that issuers with more board renewal—be it board term limits or written policies stating they are considering women when recruiting for new board positions—have more gender-diverse boards than those that don't. Second is a review of best practices, learnings, and key models adopted by governments around the world. Third is Catalyst's expertise, which has been gained over 50 years of conducting groundbreaking research to measure and diagnose talent management gaps and developing programs for organizations to leverage top talent and accelerate the advancement of women and inclusive workplaces.

Government policies mandating companies to report the types of actions they are taking to address board and senior management, as well as explaining why they may not have policies in place, force companies to address the issue. They can also provide best practices or proof points for other organizations to implement.

One proven solution is sponsorship, the act of support by someone appropriately placed in an organization who has significant influence on decision-making processes and advocates and fights for the advancement of an individual. The Catalyst women on board program demonstrates the impact of sponsorship. The program pairs a CEO or board chair with a senior executive woman who aspires to board service, for a two-year partnership. The mentor sponsors provide valuable advice and counsel, and critically, introduce the women candidates to their network of sitting directors. Since the program began almost 10 years ago, almost 60% of program alumni have been appointed to corporate boards, and over 130 Canadian companies have appointed “women on board” participants to their boards.

Another proof point can be found in the Catalyst accord. The accord is a call to action for Canadian companies to increase the overall proportion of the FP 500 board seats held by women to 25%. Since the launch in 2012, 86% of the accord's signatories are at or above the 25% goal, including several at 30% or higher.

At the end of the day, while the means to increase women's representation may vary, the key is that it gets done and gets done quickly. Until women achieve parity in business leadership roles in Canada, they will be marginalized in every other area.

Thank you for your attention.

[The Chair, Liberal, Dan Ruimy]

Welcome, everybody, to meeting number 47 of the Standing Committee on Industry, Science and Technology. Again today we are working on Bill C-25.

We have quite a few witnesses with us today. We have, from the Institute of Corporate Directors, Matthew Fortier, vice-president, policy. From Catalyst Canada Inc., we have Tanya van Biesen, executive director. Via television land, from Osgoode Hall Law School of York University, is Aaron A. Dhir, associate professor. As well, from the Canadian Coalition for Good Governance, we have Stephen Erlichman, executive director, and Catherine McCall, director of policy development.

Welcome, everybody.

We will get right into it. You each have 10 minutes to present, and then we'll go to our rounds of questioning.

We're going to start with Monsieur Fortier.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you very much.

I'll be splitting my time with Majid, as well.

First of all, Minister, thank you very much for presenting to us this morning. It was very informative.

During your presentation you talked about various groups that could be defined as involved in the diversity. One of the groups you talked about was age. My question is going to be around how Bill C-25 might engage young people or get young people involved, because young Canadians transcend a whole diverse group of people.

In your opinion, the changes to Bill C-25 bring about, will they be beneficial to engaging young Canadians?

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Bill C-25 also speaks to a number of other items. Basically, we've been talking about the diversity of boards at this point in time, but it also talks about the prohibition of bearer shares, certificates and bearer share warrants and where that is going to go. I wonder if you can touch on that, the technical aspect of it and the rationale for doing this and how deep you plan on getting into analyzing whether or not that is successful.

[Navdeep Bains, Liberal, Mississauga—Malton, ON]

I think overall the proposals that we brought forward under Bill C-25 are long overdue. The last time we made changes to our framework laws was in 2001. It has been a substantially long period of time since we brought these changes forward. I'm very proud that our government has taken action on this and that we've brought these changes forward.

Again, I think the committee can speak to the terms of when they want to see changes reflected in our framework, in our laws. Obviously, as I mentioned, there has been a tremendous amount of change in technology, there has been a lot of intense global competition, and therefore, we need to constantly re-examine and re-evaluate.

From my perspective, particularly when it comes to areas of diversity, I'd like to see meaningful progress in those areas. For example, I think five years presents a reasonable timeline where we can re-evaluate and determine what kind of progress we've made. Then, if we haven't achieved the outcomes that we want, how can we move forward in a meaningful way? What other tools do we have in our tool box? That would be a suggestion I would have for the committee, but I would welcome hearing your thoughts.

[Navdeep Bains, Liberal, Minister of Innovation]

Thank you very much, Mr. Chair. It really is an honour and privilege to be back here before the committee and to have an opportunity to talk about and address a very important piece of legislation, Bill C-25.

I am here with my deputy minister, John Knubley, and Mark Schaan, director general, marketplace framework policy branch, strategic policy sector, so I am surrounded by some very intelligent individuals who can address any specific and difficult questions.

Bill C-25 covers a lot of important ground. The bill will support efforts to improve diversity on corporate boards and in the senior management ranks of publicly traded companies. It will improve corporate governance. I am delighted that both official opposition parties have expressed support for this legislation.

We have already heard some thoughtful commentary on second reading. Many of you have also heard witnesses who have come before the committee as well, and I look forward to discussing this bill with the honourable members of this committee.

I'd like to begin with a reminder of the context in which we are bringing forward this bill.

Our government is committed to innovation for a better Canada—innovation that will create jobs, strengthen the middle class, and prepare Canadians with the skills they need for the jobs of the future.

As legislators, we have a responsibility to set the ground rules for doing business, and we can create the winning conditions for people and companies to innovate.

Our country is at its most prosperous when everyone has a fair chance at success. Bill C-25 addresses this goal by making important adjustments to the framework laws that govern the Canadian marketplace. These laws set out how corporations are organized, and they also promote investor confidence and a competitive marketplace.

The amendments in this bill will provide the foundation for how Canadian businesses operate in the 21st century, and they will align Canada's framework laws with best practices in jurisdictions around the world. If there is one key objective or message that I could convey about what this bill is trying to accomplish, it is that we truly want to promote best practices in Canada.

The first set of amendments contained in Bill C-25 aims to promote greater shareholder democracy. First, the bill will require corporations and co-operatives to hold annual votes to elect directors. Currently, the law permits directors to hold office for up to three years before a vote is required. Second, directors 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. The goal is to ensure that the voting process allows shareholders to have their voices heard in a meaningful way. Additionally, Bill C-25 will improve corporate transparency, eliminate outdated instruments of commerce, and modernize shareholder communications.

These changes will reflect the new norms and practices of a digital economy—I often tell people that now it's no longer the economy; it's the digital economy. The bill increases business certainty and flexibility. It will allow Canadian businesses to focus on what makes them most productive, efficient, and innovative.

Allow me to elaborate on the elements of the bill that address diversity in corporate Canada, because there has been a lot of debate and discussion around this aspect. It's not simply the right thing to do, but it's also good for business. Under-representation of different segments of our population in business is a drag on Canada's bottom line.

Our government places a high priority on innovation to create better skills, jobs, and opportunity for all Canadians. Regardless of one's gender, age, faith, background, orientation, or ability, we want to see every Canadian work to their full potential. In the boardroom, as in life, multiple perspectives can lead to innovative thinking and better performance. As I tell people, good ideas can come from anywhere and anyone. Innovation requires fresh ideas, and research shows that leaders who embrace diversity are more likely to have employees who contribute to their full potential.

Our government is committed to encouraging the full participation of those Canadians who are currently under-represented in the economy. To that end, Bill C-25 will require corporations to disclose to their shareholders the gender composition of their boards and senior management.

They will also be required to make public their diversity policies. Those corporations without diversity policies will have to explain why they don't have one, and that's a key component of this bill as well.

This amendment is aligned with measures that have already been adopted by most provincial security regulators, and it will apply to all publicly traded corporations incorporated under the Canada Business Corporations Act, regardless of which securities regulator they report to.

Some have commented that Bill C-25 does not provide an explicit definition of diversity—I've heard that from individuals, and I look forward to that conversation this morning. That's because our government has made a clear and deliberate choice to understand diversity in the broadest and most inclusive terms possible. Diversity can include a broad range of skills and experience. It can encompass people from all genders, geography, cultural backgrounds, and faiths, or even people with disabilities. Achieving greater diversity on boards and in senior management is an achievable and realistic goal. Take the Canadian Board Diversity Council, for example. It has established an annual list of qualified candidates who are “board-ready”. These candidates have a variety of skill sets, experience, gender, and cultural backgrounds that could be of great benefit to any board of directors.

The objective of this bill is not to be prescriptive or punitive. Rather, the objective is to mandate an open conversation about good corporate governance between companies and their shareholders. It also allows shareholders to hold the board accountable for how it promotes diversity in leadership positions, so it truly also provides an accountability mechanism. Bill C-25 is being introduced at a time when many organizations are already looking to recruit more under-represented groups to the highest levels of corporate leadership, and they're finding plenty of talent to choose from.

If I may digress for a moment, I've had an opportunity to travel internationally and within Canada. I can tell you right now that diversity is our strength. The fact that we have people from different backgrounds available and able to put forward their ideas in a meaningful way, in senior management positions at the board level, is a source of competitive advantage for Canada. For example, the Institute of Corporate Directors, along those lines, has a registry of more than 3,500 who have the skills, qualifications, and training to serve on corporate boards. To make it easier for companies to find the right people, the institute provides a referral service and offers to match companies with suitable candidates. We commend this effort. The story of “Oh, we're trying to promote diversity, but we can't find people with diverse backgrounds” I don't think applies in this day and age.

Some commentators have suggested that Bill C-25 should include gender-based quotas. Our government prefers, as a starting point, to adopt the approach taken by the U.K. and Australia. These countries have been successful in promoting diversity by adopting an approach called “comply or explain”. It requires publicly traded corporations to disclose their gender composition and diversity policies among their executive ranks. If they do not have a policy in place, they are called upon to explain why. That's the concept behind comply or explain. In fact, Bill C-25 is similar to the provisions in the U.K. corporate code, which does not define diversity but specifically includes gender diversity.

Some organizations have proposed voluntary targets to increase the participation of under-represented groups on corporate boards. These organizations include Catalyst Canada and the 30% Club, which promote the advancement of women in the workplace. These organizations are part of a broader movement that includes shareholders, provincial security commissions, and civil society.

In fact, support for this bill has come from the Canadian Coalition for Good Governance, the Ontario Teachers' Pension Plan, and the Ontario Securities Commission, just to name a few. With such broad-based consensus, I'm confident that corporate Canada will rise to the challenge of promoting diversity.

That said, our government's work does not stop with the passage of Bill C-25.

Once the bill becomes law, we are committed to monitoring the level of progress achieved by corporate Canada to promote diversity at the senior-leadership level.

In the event there's no meaningful change in the composition of corporate boards and executive ranks, our government is prepared to review Bill C-25. I've said this in the House and I want to repeat this again this morning as well. We're willing to re-examine the tools we have to be able to see meaningful progress. If appropriate we will consider additional action.

Finally I'd like to address a suggestion raised by some of my honourable colleagues. They suggest that Bill C-25 should address the issue of limiting executive compensation. I heard this again in the debate in the House as well. In 2014 the department held extensive public consultations on the Canada Business Corporations Act to ensure that its governance framework remains effective, fosters competitiveness, and supports confident investment. Over 80 submissions were received from a variety of businesses and legal stakeholders, and a wide set of perspectives was given on the issue of executive compensation, raising a number of complex issues that require further study.

As Bill C-25 covers the items from these consultations where views were most consistent—that was the objective, we wanted to find where there was common ground—the question of executive compensation may be dealt with on a future occasion.

This will allow for a more considered view as best practices and early pilots in other jurisdictions emerge and mature.

My honourable colleagues, our government is committed to growing the economy, creating jobs, and strengthening the middle class. As such we are building the right foundation for an inclusive and innovative Canada. We want to foster new thinking by harnessing the full talent and experience of all Canadians, and we recognize, as I said before, that diversity is our strength.

Bill C-25 ensures that we create the right conditions to keep Canada at the forefront of a global economy, and it will provide a transparent and predictable business environment for firms to innovate and grow.

I look forward to discussing this legislation with you.

Thank you.

[The Chair, Liberal, Dan Ruimy]

I'd like to call the meeting to order.

Welcome, everybody, to meeting number 46 of the Standing Committee on Industry, Science and Technology. Pursuant to the order of reference on Friday, December 9, 2016, we continue our study of 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.

Today appearing before us we have the Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development; along with John Knubley, deputy minister; and Mark Schaan, director general, marketplace framework policy branch, strategic policy sector.

Welcome, gentlemen. We are going to go right into it.

Minister Bains, you have the floor.

[Paul Schneider]

From my understanding of the legislation—and I too am not a lawyer—I think the provisions of Bill C-25 would apply to public company boards. If a company comes in and sets up a subsidiary in Canada and the parent company is offshore, my understanding is that they're not a public company in Canada. They're not trading on the TSX and not registered under the CBCA or the provincial BCAs, so I'm not sure that the law would apply to them.

[Paul Lalonde, President and Chair of the Board of Directors, Transparency International Canada]

Thank you, Mr. Chairman.

I would like to thank the committee for this invitation.

My remarks will be in English, but I will be pleased to answer questions in French.

Again, thanks for the opportunity to be heard by video conference. I think the technology is wonderful, and I appreciate the committee's efforts in using it in this way.

With me, present in Ottawa today, is Denis Meunier, a member of Transparency International Canada and of our beneficial ownership working group. He will have a few remarks at the end as well.

I'd like to make a few opening remarks about our recommendations with respect to Bill C-25, but first, here are a few words about who we are.

Transparency International Canada is the Canadian chapter of Transparency International, the world's leading non-governmental anti-corruption organization, with more than 100 chapters worldwide and an international secretariat in Berlin. Through advocacy, research, and capacity-building work, Transparency International strives toward a world that is free of corruption. Our chapter here in Canada has been at the forefront of the national anti-corruption agenda for more than 20 years. Our chapter's main concern related to Bill C-25 is on beneficial ownership of companies and the transparency of that beneficial ownership.

We welcome the Government of Canada's measure to reform current legislation that affects this area through the proposed amendments. However, we believe that Bill C-25 can go further to address the negative impacts of opaque beneficial ownership of companies in Canadian corporate registries.

To provide a bit of context, public expectations about transparency are changing and increasing. Whistle-blower disclosures like the Panama papers have provided concrete examples of how anonymous companies and legal entities are abused by those seeking to avoid taxes and launder the proceeds of crime and corruption, among other nefarious aims. The abuses exposed through these leaks and others have triggered widespread interest in what was once dismissed as a rather mundane or sleepy legal topic.

Governments around the world are also recognizing the threats posed by underregulated legal entities and arrangements. In 2014, recognizing this, the G20 issued its high-level principles on beneficial ownership, acknowledging the importance of transparency in protecting the integrity of the global financial system. In 2016 the European Commission mandated its 27 member countries to collect and publish information on the beneficial owners of companies registered within the union. More recently, the U.K. has already enacted legislation and implemented new disclosure rules, and other countries are following suit. That is not so much the case in Canada.

As more countries put up barriers to the criminal and corrupt, those looking to game the system will gravitate to jurisdictions with weaker standards. A recent Transparency International report, of which we're very proud, was titled, “No Reason to Hide: Unmasking the Anonymous Owners of Canadian Companies and Trusts”. We submitted the executive summary of this report to the committee clerk. In it, we highlight a 2015 Transparency International analysis that found Canada's performance was either weak or very weak in seven of the 10 G20 principles on beneficial ownership. In September of last year, the international Financial Action Task Force published a highly critical evaluation of Canada's corporate secrecy regime. The task force called on the government to make beneficial ownership information accessible as a matter of priority.

These reports demonstrate that Canadian companies are particularly vulnerable to abuse. Beneficial owners can remain entirely anonymous, their identities concealed even from the government agencies entrusted with enforcing laws and regulations—and collecting taxes, by the way. Anonymous ownership creates unnecessary obstacles for our law enforcement and tax authorities, fostering a climate of impunity due to low perceived enforcement risks.

Recently the Toronto Star and CBC showed how financial consultants abroad have a specific term for facilitating tax dodging and funnelling illicit funds in Canada. They call it “snow washing”. This is a stain on Canada's reputation that we have to clean up. By stripping anonymity from companies, Canada would make financial crimes and corruption easier to detect and prosecute, thereby deterring them.

Beneficial ownership reform presents an opportunity for Canada to adapt to emerging international standards and avoid becoming a beacon for the corrupt. To this end, we submitted recommendations to the committee in the executive summary of our report to address the negative impacts of anonymous beneficial ownership of companies. As a priority, we recommend that the Government of Canada adopt measures to require all companies in the country to identify their beneficial owners. The government should then publish this information in a central registry that is accessible to the public in an open data format.

We recommend that Parliament also conduct a study into such a public registry, but TI Canada believes that either way it will be a low-cost, high-impact way of preventing corporate beneficial ownership misuse and would improve the effectiveness of law enforcement and tax authorities. It would help the private sector comply with regulations and make better business and investment decisions by facilitating due diligence and know-your-client exercises. It would also bolster Canada's reputation for fairness and transparency both at home and abroad.

Nominee directors and shareholders should be identified as such in corporate filings. They should be required to name the natural person on whose behalf they are acting. Nominees should keep contact details of that individual and ensure that they are accurate and up to date.

Federal and provincial corporate registration authorities should be given adequate resources and a mandate to independently verify the information filed by legal entities, including the identities of directors and shareholders. Registries should be granted authority to apply sanctions for non-compliance with these requirements.

Additionally, TI Canada welcomes Bill C-25's measures to eliminate anonymous ownership of bearer shares. We noted that change, and we applaud the government for bringing it; however, we recommend that existing bearer shares should be converted to registered shares automatically upon a company's knowledge of the identity of the bearer of the certificate warrant or other instrument. In addition, we recommend that the holder of a bearer share who tries to receive dividends or exercise voting rights using the bearer shares should automatically have those bearer shares converted to registered shares.

The Government of Canada should establish and apply dissuasive and proportionate sanctions for non-compliance with beneficial ownership disclosure rules. These sanctions should include both criminal and civil penalties, and should be applied to ensure that beneficial ownership information is truthful, accurate, and filed in a timely manner. Reporting obligations and sanctions for non-compliance should focus on those in control of legal entities and arrangements, as well as beneficial owners themselves.

The Government of Canada should lead in the implementation of these recommendations, while also working with the provinces to develop supporting legislation at the provincial level.

I want to thank you for your time today. That was a very quick summary of our views and recommendations on Bill C-25 and beneficial ownership transparency.

I'd now like to pass it over to Mr. Meunier to introduce himself and say a few additional words before we make ourselves available for questions.

[Paul Schneider, Head of Corporate Governance, Public Equities, Ontario Teachers' Pension Plan Board]

Thank you.

Mr. Chair and committee members, thank you for the opportunity to be here today to speak to you about Ontario Teachers' Pension Plan's views on Bill C-25. We support the passage of Bill C-25.

Please note that my comments will be limited to part 1, and more specifically to amendments to the Canada Business Corporations Act that address two key corporate governance issues: the election of directors to the board and board diversity.

Ontario Teachers' Pension Plan is Canada's largest single-profession pension plan, managing, as of our last audited annual report, over $171 billion of assets that provide retirement security for 316,000 active and retired teachers in the province of Ontario.

We have a long history of promoting good corporate governance in our investments and we believe that good governance is good business. We are a founding member of the Canadian Coalition for Good Governance and remain active in the organization.

Since its beginning in 2003, CCGG has grown from representing investors managing $350 billion of assets to today, when collectively CCGG members manage approximately $3 trillion of assets on behalf of all Canadians. Clearly governance, and in particular the governance of Canadian companies, matters to investors.

As I am head of corporate governance, my focus is promoting effective corporate governance on behalf of our members throughout our global public company portfolio of over 1,600 companies. We are engaged investors, meeting regularly with companies, actively voting all our shares, and working to improve corporate governance regulatory frameworks around the world. Personally, I have 15 years of experience in corporate governance, with the past seven in my role at Ontario Teachers'. Prior to that, I was the director of research at CCGG.

At its most fundamental level, corporate governance is the system and structures put in place to ensure that a company is effectively directed and controlled. In the corporate governance framework, shareholders elect directors, directors oversee management, and management executes its strategy.

The characteristics of public company ownership significantly raise the importance of having effective corporate governance. Typically, a public company shareholder like Ontario Teachers' will have a very small ownership stake in a company, usually less than 1%, yet their investment could be in the tens or even hundreds of millions of dollars.

As a result, we are placed in a situation where we have a large amount of money at risk, yet have limited levers of influence. We rely on the board to adopt and execute effective governance practices that properly oversee management and to keep the best interests of the corporation in mind—and, in doing so, safeguard and allow our investments to grow. When governance fails, our investment is impacted, and this can affect the pension promise we have made to our members—hence our statement “good governance is good business”, and why we spend so much time working to ensure that our public company investments have effective governance practices. Effective governance is about getting the right people around the board table and holding those individuals to account.

Our shareholder vote is our means or tool for holding the board of directors accountable. Unfortunately, in its current form, the effectiveness of our vote is limited. Our only two options when electing a director are to support and vote for, or to not vote at all and withhold. Voting against a director is not an option.

We find it difficult to reconcile the fact that as public company shareholders we are providing capital to companies, yet we cannot vote against a director should their actions cause us to lose confidence in their ability to effectively discharge their duties.

For years, we have advocated for the inclusion in Canadian and provincial laws of true majority voting—that is, the ability to vote for or against—in director elections. That is why we were extremely pleased to learn of the inclusion of majority voting in director elections in Bill C-25. We fully support the amendment to the CBCA that requires directors to be elected only when they receive the support of at least 50% plus one of the vote. This change will allow shareholders like Ontario Teachers' to truly hold individual directors accountable. We believe that holding directors accountable leads to more effective boards, effective governance, and effective capital markets. It is simply good business.

Some may argue that the current TSX rule requiring a majority vote policy is sufficient. We disagree, for the simple reason that under majority vote policies there is no guarantee that a director resignation will be accepted. In fact, there was an incident in 2015 when a director of a large Canadian company received a majority of withhold votes because shareholders were unhappy with the decision made by a committee the individual chaired. As per the majority vote policy, a resignation was submitted, only to be rejected by the chair because, in part, the loss of a director of “high quality and integrity...would be deplorable.”

While shareholders voiced their displeasure with the rejection of the resignation, they were left with little recourse and with having to accept a director in whom they had no confidence remaining on the board. This example illustrates the significant difference between a withhold vote and a vote against that cannot, nor should not, be underestimated. Facing the consequence of being voted off the board may be just the stimulus needed to cause a board or director to think twice about how they are exercising their fiduciary duty.

Let me be clear. Ontario Teachers' Pension Plan believes the vast majority of directors are highly qualified, extremely competent individuals who are performing a difficult and sometimes underappreciated task. However, we also strongly believe that it should be our right as owners of the company to decide who should be in that boardroom overseeing management and ensuring management is acting in the best interests of the corporation, and by extension in the best interests of the investors, who in our case are the active and retired teachers of Ontario.

Furthermore, and as I believe you are aware, Canada and the United States are outliers. We are the only jurisdictions in the world that do not allow shareholders to vote against directors. Thus, in addition to supporting effective governance, majority voting will increase the confidence global investors have in the ability of our capital markets to function effectively.

The second issue I would like to discuss with respect to Bill C-25 is the requirement to disclose, on a comply or explain basis, the existence and substance of a diversity policy. We believe that diverse boards are more effective boards. For Ontario Teachers', diversity is not limited to gender but includes diversity across a number of spectrums. However, as we stated in our submission to the OSC during their consultation on diversity in 2013, we believe that focusing on gender diversity is an appropriate starting point to increase overall board diversity and to encourage issuers to develop a broader and deeper selection process that embraces and enhances diversity.

Furthermore, we believe there is a deep pool of untapped potential candidates that a broader and deeper selection process will reveal. We point to the thousands of individuals who have attained either an ICD.D designation from the Institute of Corporate Directors or are recognized as a chartered director from The Directors College as two potential sources of diverse directors.

Gender diversity improves board effectiveness because it brings different views to the boardroom table. Studies by Catalyst and others continue to show that company performance improves if there are women in senior management and/or on the board. A recent study by MSCI, published this past December, found that companies with at least three women on the board in 2011 experienced a median change in return on equity of 10% and in earnings per share of 37% by 2016. Conversely, companies with no women on the board in 2011 had an ROE change of -1% and an EPS of -8% over the same time period. The study also found that companies adding women directors to the board correlated with higher median increases in EPS compared to losing women on the board during the 2011 to 2016 time period. In addition, the MSCI study looked at gender diversity throughout the organization and found that companies with three or more women on the board had higher rates of women in senior management, including the CEO.

What we conclude from the MSCI study is that promoting a higher percentage of women on the board will have an impact on gender diversity across an organization. We are not suggesting that the CBCA establish any quota, but rather promote more diversity through the comply or explain regime articulated in Bill C-25.

The efforts of provincial security regulators, issuers, organizations such as Catalyst, the 30% Club—of which Ontario Teachers' is a member—and institutional investors have all contributed to increasing female participation on boards. While we are not where we need to be, Ontario Teachers' strongly believes that a sustained effort, as well as the comply or explain approach of Bill C-25, will continue to move us down the path of increasing gender diversity both on boards and in senior management. This will open organizations to a broader diversity of opinions, experiences, and outlooks in their decision-making. It is our hope that someday in the not-so-distant future, we will no longer need to have discussions on how to make boards and senior management more diverse.

In closing, I would once again like to thank the chair and the committee members for inviting me here today to reiterate Ontario Teachers' support for the passage of Bill C-25. I hope you found my comments useful. I would be pleased to answer any questions you may have. I would also like to encourage each of you to not hesitate to approach me at any time should you have further questions.

Thank you.

[The Chair, Liberal, Dan Ruimy]

I call the meeting to order.

Welcome, everybody, to meeting 45 of the Standing Committee on Industry, Science and Technology.

We are continuing our study of Bill C-25.

Today we have with us Paul Schneider, head of corporate governance at the the Ontario Teachers' Pension Plan Board. From Transparency International Canada, we have Denis Meunier, beneficial ownership working group, and Paul Lalonde, president and chair of the board of directors, by video conferencing from Toronto. Then, from the Diversity Institute at Ryerson University, we have Wendy Cukier, director.

We're going to start off with Mr. Schneider from the Ontario Teachers' Pension Plan.

You have 10 minutes to give us a presentation.

[Jennifer Reynolds, President and Chief Executive Officer, Women in Capital Markets]

Thank you. It's a pleasure to be here.

I'm going to focus on women and leadership—that's where my expertise lies—or more specifically, the lack thereof. I have a few slides that I've put together, but first I'll just give you some context around the numbers.

If you compare us globally to OECD countries, the numbers in Canada are not good. Representation on boards today is about 12% for publicly listed companies, TSX companies. If you have the graph in front of you, you'll see that at the bottom of the graph.

You're looking at other countries that are 30% to 40%. Some of those countries have gone the route of quotas. We have not chosen that. We've chosen “comply or explain”.

They also started a lot earlier. Other countries focused on the issue of why we don't have more women in leadership a lot sooner than we did in Canada. We put the regulation into place a couple of years ago.

In the U.K., comply or explain actually worked. They've gone from 12% representation on boards in 2012 to 26% today. It can work, but we haven't seen a lot of progress. In Canada today, 45% of boards have zero women on them; another 30% have one. The executive suite looks pretty much the same. If you asked those boards why they don't have any women or how they appoint, they would say, “We appoint based on meritocracy”, which obviously implies that 45% of boards decided that they couldn't find one woman who merited a board seat.

We all know that this is just a red herring. It's ridiculous. There are plenty of very qualified women for boards in this country. If anyone needs a recommendation, they can come to me. That's not the issue. It's a demand issue. That's how we need to address it in this country, and recognize that there are lots of very qualified women.

If you look at the progress since comply or explain, it's gone up 1%. We were at 11% last year; it's 12% this year. That's just not good enough. Of the 521 seats that came up last year, only 15% were filled by women, so we're not seeing corporate Canada paying any attention to comply or explain in any broad sense.

I know Bill C-25 is coming forward, and it will mimic the same sort of disclosure that we require of publicly listed companies. Bigger companies are taking this more seriously, but they have been for a long time. They've always had better disclosure. They've always focused on these things.

Canada is an economy of smaller companies. That's the reality. We need this to be broadly taken up by companies in Canada. Often you'll get the excuse, “Well, we're a resource-heavy economy, and therefore we can't because there are no women in resources.” In Australia, they managed to go from 8% on boards in 2008 to about 23% today, so other countries that are resource-heavy economies are also making progress. We certainly can in Canada as well.

Here are a couple more quick statistics on the whole board issue.

Part of the issue is that you need to have policies: do you care? Are you looking at it? Only 21% have any sort of policy around gender diversity.

The second thing is that you have to have targets. Any business in Canada has targets around its objectives. For people in Canada and the corporate world, if you say “targets”, it computes in their heads immediately as “quotas”. It's not a quota. It's a target. We always put metrics around things, and companies need to do this. We need to start thinking about that. It's not good enough for companies to just say, “We don't have a policy. We don't have targets.” We need to ask more of Canadian corporations.

The key issue here is, why should you care? Obviously, there is a social justice element here, but there is a business case. Much research has been done. I'm sure people around this table have read it, so I won't go over it all. Canada needs to care because our economy will be stronger. Our businesses will be stronger.

We're leaving half the talent pool sitting around. Women have been over 50% of the university graduates for 25 years now, and today it's 62%. We earn 50% of master's degrees, and Ph.D.s now too. All that talent is just going away. We're close to 50% of the workforce and about 35% of middle management, and have been for a couple of decades—in the U.S., women are 50% of middle management—and yet, if you look at senior officer roles, you see 18%. The numbers aren't budging. They haven't moved in a long time. We need to make sure that those numbers start moving, because that talent is just wasting away at the mid-level.

There are different ways you can get at this problem. I think too often we decide that it's the baby issue. That's what I hear from senior leaders all the time: it's just the babies. Absolutely, that's an element of the problem, but it's not just about the babies. There are all kinds of structural barriers in the corporate world today that make it difficult for women to advance.

Thankfully, I'm in an industry that, if you look at the broader financial sector, is looking at this problem very carefully. They've done some good work. A couple of the financial institutions now are at about 40% in terms of the representation of women. You can do it. That's my point. It can be done. Companies are doing a better job today and making progress on this, but it takes very formal talent management. I can go into the different types of policies if people are interested in what companies are doing and best practices, but I'll leave that for now, unless there are questions on it.

In particular what we need here is transparency. If you're thinking about what can you do from a public perspective, we need to encourage transparency. This comply-or-explain approach also needs some support behind it.

In the U.K. the reason it was successful is the government put in place a review called the Lord Davies' report every year, and it really was a review on pushing.... First of all, they went around and they got stakeholder engagement from the corporate world broadly—chairmen, senior leaders—and from the public sector to say they needed to focus on this, since it's a business issue. They published their report every year. There was a bit of a shaming game involved there, too. They put the list of people who were doing nothing out there, and you have to do it. I've been told it's un-Canadian to be shaming people like that, but, you know, we need to do it.

It also provided best practices, and it provided that report card every year to say how they were doing. That's why we saw real progress there, I believe, along with a few other entities like the 30% club that were pushing. We need that. The feeling generally in comply or explain is there's a frustration there, so we need more behind it.

Thank you.

[Mark Schaan, Director General, Marketplace Framework Policy Branch, Strategic Policy Sector, Department of Industry]

Perhaps I can jump in here to indicate that in fact Bill C-25 actually goes an explicit step further.

Currently, under securities commissions' laws in eight of the securities commissions in the country, corporations on an annual basis already need to file the gender makeup of their board and the gender makeup of their senior management.

It's the explicit intent of the bill to go beyond that and ask companies to file their diversity policy and summarize it for their shareholders, facilitating a conversation between shareholders and the corporation. In fact, in the draft regulations, Corporations Canada has indicated that the policy actually specifically indicates a written policy relating to diversity other than gender amongst the directors and members of senior management.

It is actually explicit that it is in fact beyond gender, which would put us in a—

[Mitch Davies, Assistant Deputy Minister, Strategic Policy Sector, Department of Industry]

Good morning, Mr. Chair and members of the committee. It's our pleasure to be here today with you to speak to Bill C-25.

Innovation, Science and Economic Development's core mandate is to help make the Canadian economy and industry more productive and competitive in a global economy, thus improving the economic and social well-being of Canadians. One of the critical ways in which we accomplish this is by ensuring that our framework legislation is up to date and in line with international best practices. Maintaining effective legislative frameworks for business is a critical endeavour, since these laws lay out the ground rules for doing business in Canada.

We're in constant review of the laws administered by our department, how they compare to other jurisdictions, and how they meet the expectations and needs of Canadians. The Canada Business Corporations Act, or CBCA, is an important piece of framework legislation that sets out basic rules for federal corporations. This law establishes the legal regulatory framework for close to 270,000 federally incorporated companies. Allowing for ease of doing business by providing for clear and predictable operating rules is critical, as our laws act as a foundation for innovation in a growing economy.

Governing the relationship between a corporation and its shareholders is one of the most critical elements of a sound business landscape, and that's why it's important to make sure that the CBCA continues to meet its policy objectives. To this end, the department embarked on a broad stakeholder consultation in 2014 to canvass the views of those most affected by the CBCA. We received over 80 submissions with a range of viewpoints on how best to proceed.

Some of these areas we will continue to look into, where thought is still developing and experience abroad is still fresh. Others bore a clearer consensus among the competing viewpoints. It is this set of issues that we have chosen to address by way of Bill C-25 before you today, in order to optimize Canada's corporate governance law to allow our businesses to thrive and innovate within as modern and responsive a framework as possible.

The items you find in Bill C-25 concern the way corporate directors are elected, how diversity is promoted in the business sector, and how corporations communicate with their shareholders. Certain of these changes will be reflected not only in the CBCA but in its companion statutes that deal with co-operatives and the not-for-profit corporations as well.

Other elements of this bill concern the clear and unambiguous prohibition of unregistered instruments that can be misused for criminal means and an update to how affiliated entities are treated under competition law. The changes being made here are informed by best practices from here in Canada and at the provincial level, as well as from our main trading partners abroad.

To get more specific, Bill C-25 makes a number of discrete but important updates to Canada's corporate and co-operative laws, which I'll highlight briefly here, and we'll happily field questions that you may have afterward.

The bill makes three important changes to the process by which directors are elected. First, it ensures that elections are held for all directors annually, which is an update from the current requirement under the CBCA that allows directors to serve up to three years at a time, with staggered terms.

Second, it ensures that directors are elected individually, rather than as part of an all-or-nothing slate of directors. This rule, as well as annual elections, would bring the CBCA in line with existing TSX rules.

Third, if the number of spots open on a board of directors is equal to the number of candidates presented—that is, it is an uncontested election—voters will now have the option to vote against a candidate, rather than simply withholding a vote, and that candidate will only assume the directorship if a majority of votes cast are in their favour. This will prevent the nearly automatic election of directors on the basis of even a small number of “for” votes.

Bill C-25 will also support efforts to increase diversity on corporate boards and in senior management by encouraging an exchange of information on corporate practices in this regard between a company and its shareholders. The bill will require publicly traded CBCA corporations or distributing corporations, as they're referred to in the act, to make disclosures on diversity on their boards and senior management, including the policies they have in place. If no such policies exist, boards will have to explain why to their shareholders. It's a system commonly referred to as comply or explain.

Furthermore, the bill will leverage modern digital technologies and reduce paper burden by allowing corporations to send a notice to shareholders that sets out instructions on how to obtain documents from the corporation's website in advance of a shareholder meeting.

While it's not believed that bearer shares or bearer share warrants—unregistered financial instruments whose proof is in their possession—are in common use in Canada, the bill would nevertheless clarify in very certain terms that these instruments are prohibited. Any remaining holders of bearer shares would have the opportunity to convert them into a registered form of share ownership.

Bearer instruments have been identified as vehicles for money laundering and terrorism financing. These amendments would enhance transparency and support Canada's compliance with international standards.

Finally, the bill would make a targeted but important change to the Competition Act to provide business certainty and reduce administrative burden. The rules for determining which business entities are affiliated with one another would be applied more broadly to take fully into account modern unincorporated structures, such as partnerships and trusts. This revision would increase certainty for businesses by ensuring that they would not be needlessly investigated or sanctioned under law for dealings with their own affiliates as though they were competitors, and also sparing the Competition Bureau from a needless investigation or merger review in these circumstances.

There are other minor amendments in the bill of a more administrative nature, including streamlining documents required to form a co-operative and harmonizing English and French versions of these laws, but the items I've mentioned are the key features.

I and my colleague would be pleased to provide clarification and answer questions on these points. Thank you for your time.