Canadian Banks to Unveil Board and Top Management Diversity Under New Rules

Canada's financial sector is set to become more transparent as new regulations require federally regulated financial institutions (FRFIs) to disclose the diversity of their board directors and senior management. The Diversity Information Disclosure (Banks and Bank Holding Companies) Regulations, proposed by the Governor in Council, aim to bring the corporate governance framework for FRFIs into alignment with federal best practices.



The new regulations, which will come into force by Order in Council, will require distributing banks and bank holding companies to disclose information on the diversity of their board directors and senior management. This includes the number and percentage of directors and officers from each of the designated groups: women, Indigenous peoples, persons with disabilities, and members of visible minorities. Additionally, banks must disclose their policies and targets respecting diversity in corporate governance for each designated group or explain why they do not have a policy and targets.

The objective of these regulations is to promote greater diversity in the board of an FRFI and among its senior positions over time. By increasing transparency and accountability, the regulations are expected to encourage FRFIs to adopt more inclusive practices, fostering a more diverse and representative financial sector.

The new disclosure requirements will impact the investment decisions of shareholders and proxy advisory firms by providing them with transparent and standardized information on the representation of underrepresented groups in senior leadership positions within FRFIs. This information will enable investors to assess the diversity and inclusion practices of these institutions, which has been shown to drive new ideas, innovation, organizational performance, and growth (McKinsey & Company, 2020).

Shareholders and proxy advisory firms can use this information to evaluate the effectiveness of the FRFI's diversity policies and targets, as well as their progress in achieving these objectives. They can also assess the consideration given to the level of representation of underrepresented groups in board and senior management appointments. This will allow investors to make informed decisions about investing in or engaging with FRFIs that demonstrate a commitment to diversity, equity, and inclusion.

The "comply or explain" model used in the regulations allows companies to either comply with the disclosure requirements or explain why they have not, providing a level of flexibility while still promoting progress. This model encourages a gradual pace of change by allowing companies to explain their reasons for not complying with the disclosure requirements, giving them time to develop and implement diversity policies and targets. It also promotes a more thoughtful and strategic approach to diversity initiatives by requiring banks to disclose their policies, targets, and progress in achieving diversity objectives, encouraging a strategic and long-term view of diversity and inclusion.

In conclusion, the new diversity disclosure requirements for Canadian banks will promote transparency, accountability, and a more inclusive financial sector. By providing investors with valuable information on the diversity of board directors and senior management, the regulations will enable shareholders and proxy advisory firms to make more informed decisions and hold FRFIs accountable for their diversity efforts. This will ultimately contribute to a more successful and thriving financial sector that reflects the diversity of Canadian society.