Authors: Andrew MacDougall, John M. Valley, Joanna Cameron, and Jessie Armour
Developments in diversity: women and other underrepresented groups
Over the past year, reports in Canada and internationally that track the progress being made in enhancing diversity practices at the board level have found continued improvement, albeit slower and with much less progress in representation among chairs and leadership teams. This slow rate of progress towards increased representation of women among leadership teams in many jurisdictions, combined with the negative perception of, and increasing challenges to, diversity policies in the United States, suggests that the rate of progress at the board level will continue to slow. In addition, reports on diversity beyond gender in several jurisdictions show that visible minorities, Indigenous Peoples, persons with disabilities and members of the LGBTQ2S+ community remain significantly underrepresented at the board and executive levels.
Developments in Canada
Potential changes to the diversity disclosure requirements for CBCA reporting companies
Since January 1, 2020, distributing corporations (generally, public companies) governed by the Canada Business Corporations Act (the CBCA) have been required to provide diversity disclosure regarding “designated groups” as defined in the Employment Equity Act (the EEA). In December 2023, Employment and Social Development Canada released the report of the Employment Equity Act Review Task Force (the Task Force) and announced initial commitments to modernize the EEA. These commitments included amending the definition of “designated groups” to: (i) create two new designated groups under the EEA: Black people and 2SLGBTQI+ people; (ii) replacing the term “Aboriginal Peoples” with “Indigenous Peoples” and updating the definition to include First Nations, Métis and Inuit and to ensure it is consistent with the United Nations Declaration on the Rights of Indigenous Peoples Act; (iii) replacing the term “members of visible minorities” with “racialized people” and updating the corresponding definition; and (iv) aligning the definition of “persons with disabilities” with the Accessible Canada Act to make it more inclusive. The government has indicated that the first step in advancing these comments is to consult with affected communities and organizations representing unions and employers.
Voting recommendations took effect
In 2024, Institutional Shareholder Services [PDF] (ISS) began generally recommending voting against or withholding votes for the nominating committee chair (or its equivalent) of companies on the S&P/TSX Composite Index where the board has no apparent racially or ethnically diverse members and the company has not provided a formal, publicly disclosed written commitment to add at least one racially or ethnically diverse director at or prior to the next annual general meeting.
A report by LGBTQ+ Corporate Directors Canada and the Institute for Gender and the Economy at the University of Toronto’s Rotman School of Management was able to identify only 0.15% board members as being LGBTQ community members among the directors of TSX-listed companies subject to the Diversity Disclosure Requirement.
Reports on diversity in Canada
The Canadian Securities Administrators (CSA) summarized the results of its review of disclosure by issuers in 2023 in response to the Diversity Disclosure Requirement, in CSA Multilateral Staff Notice 58-316 [PDF], released in October 2023. The CSA reported that 27% of board seats are held by women, an increase of three percentage points from 2022. The proportion of vacated board seats being filled by women was 43% (down slightly from 45% in 2022). The CSA noted a slight increase in adoption rates of written board policies (64% compared to 61% in 2022) and the adoption of targets for women directors (43% compared to 39% in 2022), but little change in the proportion of issuers adopting targets for women executive officers (5%).
Innovation, Science and Economic Development Canada released its fourth annual report in May 2024 of disclosure by issuers in response to the CBCA Requirement. The report found that in 2023 the percentage of board seats held by women was 22%, Indigenous Peoples was 0.7%, visible minorities was 5% and persons with disabilities was 0.5%. These results were slightly higher than the previous year for every category except visible minorities, which declined slightly from 6% in 2022. The report also revealed some improvement at the senior management level — where women held 29% of all senior positions, Indigenous Peoples held 0.5%, visible minorities held 13% and persons with disabilities held 0.5% — reflecting increases in all categories except persons with disabilities, which decreased from 1.2% in 2022.
In June 2024, a report by LGBTQ+ Corporate Directors Canada and the Institute for Gender and the Economy at the University of Toronto’s Rotman School of Management, conducted a study of TSX-listed companies subject to the Diversity Disclosure Requirement between 2015 and 2022 to identify LGBTQ+ directors. The report was only able to identify 0.15% of directors as being LGBTQ+, even though the report notes that StatCan estimates that, as of 2019, 4.4% of the Canadian population identified as LGBTQ+.
In November 2023, Women’s Executive Network (WXN) released its report [PDF] on the representation of women on boards and executive leadership at FP500 organizations. It noted that in 2023 women held 34% of the board seats at FP500 organizations, but in the three years beginning 2020 and ending 2023, the percentage of women acting as chair of the board increased by only 0.8 percentage points, from 12.2% to 13%.
Similarly, it reported that in 2022 women represented 24.4% of leadership teams across all FP500 organizations (and only 15.8% and 15.7% at FP500 organizations in the mining/oil/gas and construction industries, respectively) and that between 2020 and 2023 the percentage of women holding the president and/or chief executive officer role at FP500 organizations increased by just 3.8 percentage points, from 6.8% to 10.6%.
Also in November 2023, ISS-Corporate conducted a review of its data relating to certain Canadian public company boards. It reported that as of October 16, 2023, the percentage of board seats held by Caucasian/white directors at Canada S&P/TSX companies was 87.3%, though, according to Canada’s 2021 census, almost 70% of Canada’s population is Caucasian/white. Further, while 16.9% of S&P/TSX 60 large-cap companies had no ethnic diversity on their boards, 33.1% within the rest of the TSX composite had no ethnic diversity on their boards.
Developments around the world
Diversity generally
United States
Under a rule change that became effective on December 14, 2022, NASDAQ-listed companies have until 2025 to have at least one female director and one director who self-identifies as an underrepresented minority or as LGBTQ+ or must explain why they do not. In October 2023, a panel of the United States Court of Appeals for the Fifth Circuit upheld the freedom of NASDAQ, as a private market participant, to impose listing requirements on companies that chose to list on the exchange. However, in February 2024, the Court vacated the panel’s opinion. On May 14, 2024, with all active Fifth Circuit justices presiding, the Court heard oral arguments en banc, and a decision is expected soon.
In October 2023, California adopted a new law to require venture capital investors with a California nexus to file an annual report detailing demographic data about the founding team members of the businesses in which they invest, including gender identity, race, ethnicity, disability status, LGBTQ+, veterans and California residency, commencing March 1, 2025. This diversity reporting law, however, may face implementation and legal challenges.
In a June 2023 decision [PDF], the U.S. Supreme Court held that the admissions programs at Harvard College and the University of North Carolina, which considered race as one of many factors when determining the incoming class of students, violated the equal protection clause of the U.S. Constitution.
However, in September 2023, the U.S. District Court for the Eastern District of Washington dismissed a challenge [PDF] by the National Center for Public Policy Research in the form of a derivative action on behalf of Starbucks Corporation against certain of its directors and officers that was seeking declaratory judgment and injunctive relief on the grounds that some of Starbucks’ diversity initiatives allegedly violated section 1981 of the 1866 Civil Rights Act, Title VII of the 1964 Civil Rights Act and state anti-discrimination laws, and further alleging that the policies constituted a breach of directors’ fiduciary duties.
In addition to legal proceedings, companies have also faced shareholder proposals during the 2024 proxy season challenging their diversity, equity and inclusion (DEI) practices. According to data collected for the Conference Board by the ESG data analytics firm ESGAUGE, the number of DEI-related shareholder proposals going to a vote in the Russell 3000 has almost doubled compared to 2023, but support has dropped from 19% in 2023 to 13% in 2024.
In response to these legal challenges, shareholder activism and media interest, companies have begun to revise how they describe their approach to inclusivity, including downplaying their use of DEI targets and links to compensation. For example, in its most recent proxy statement, Starbucks no longer ties 7.5% of executive bonuses to inclusion and diversity and the “representation” modifier for its long-term incentive goals has been replaced with a “talent” modifier. At Molson Coors, “People & Planet” metrics have displaced environmental, social and governance (ESG) goals and the acronym DEI has disappeared altogether.
United Kingdom
Companies on the premium or standard listing segments of the Financial Conduct Authority’s (FCA) Official List in the U.K. began reporting in 2024 on a comply-or-explain basis on whether they have (i) at least 40% women on the board; (ii) at least one senior board position (chair, CEO, senior independent director or CFO) held by a woman; and (iii) one board member from a minority ethnic background.
In September 2023, the U.K. FCA and the Prudential Regulation Authority released consultation papers on a proposed new regulatory framework with respect to diversity and inclusion in the financial sector. The proposals would require companies in the financial sector to have a diversity and inclusion strategy, to set targets for diversity at the board and senior leadership levels and in the workforce generally and to collect, report and disclose diversity data. The proposals would apply differently to firms depending on the number of employees.
Final rules were expected to be issued in 2024; however, in May 2024, the FCA confirmed that it has suspended its data gathering and diversity target setting proposals upon concerns regarding the proposals being raised by the House of Commons Treasury Committees Sexism in the City inquiry, including potential regulatory overreach and regulatory burden on affected issuers.
Representation of women
United States
Using data provided by Equilar, 50/50 Women on Boards [PDF] reported that in the U.S., women held 29% of the corporate board seats among the Russell 3000 index companies as of December 31, 2023. This represents an increase of one percentage point from December 31, 2022. The rate at which women are being added as directors in the U.S. is slowing. From 2020 to 2021, the percentage of women on Russell 3000 boards increased by three percentage points. However, progress slowed to two percentage points from 2021 to 2022 before increasing by only one percentage point from 2022 to 2023. While 37% of new directors were women, 60% were the result of adding a board seat rather than replacing an existing director who was a man. Positively, though, 55% of these corporations are gender balanced or have three or more women on their board, a 3-percentage-point increase since 2022. Interestingly, the report noted that of the 2023 Russell 3000 companies whose CEOs are women, 35% of those companies are gender balanced and when a woman is any of the CEO, board chair or chair of the nominating committee, representation of People of Colour was nearly 20% (compared to 17% at organizations when there are no women in leadership positions). In September 2024, 50/50 Women on Boards reported that as of the end of June 2024, the percentage of corporate board seats held by women among the Russell 3000 index companies had reached 30%.
In response to these legal challenges, shareholder activism and media interest, companies have begun to revise how they describe their approach to inclusivity, including downplaying their use of DEI targets and links to compensation.
United Kingdom
The FTSE Women Leaders Review, issued in February 2024, reported that in 2023 women’s representation on the boards of the 350 largest public companies in the U.K. had reached 42.1%. In terms of representation on executive committees, the report noted that women on FTSE 100 leadership roles (comprising both combine executive committee and direct reports) reached 35.2% (and 33.9% on FTSE 250 companies, an increase from 32.8% in 2022). The report noted that this result was achieved on a voluntary disclosure basis and surpasses the results achieved using quotas in other jurisdictions (except France).
Australia
According to the Watermark Search International 2024 Board Diversity Index, among the companies included in the S&P/ASX 300 Index in Australia, women held 36% of the board seats as of January 1, 2024, with the average being 39% among the top 100 companies, 36% among the next 100 and 32% among the last 100 companies. The report also noted that only 9% of S&P/ASX 300 directors were of non-Anglo/European backgrounds, Indigenous persons held only seven board seats and there were just four openly LGBTQ+ directors. This was an increase across all categories except for representation of persons with non-Anglo/European backgrounds, which decreased slightly from 10% in 2023. (LGBTQ+ representation was not previously reported.) There were no people with disabilities on ASX300 company boards.
Other diversity characteristics
While the representation of women remains an important focus of worldwide initiatives to enhance diversity among senior leadership roles, there also continues to be considerable interest in the representation of other diverse individuals. Various terms are used to describe these other personal characteristics and there are challenges in determining which characteristics to report on beyond gender. Visible minority status, also described as race, ethnicity or BIPOC (Black, Indigenous and People of Colour), is often the subject of focus. Other groups that have received attention are persons with disabilities and LGBTQ2S+ people. We have highlighted new developments in these areas from the past year.
Ethnic diversity
Each year, the Parker Review provides information on the ethnic diversity of U.K. public companies. Its March 2024 update [PDF], for the first time, included an expanded scope that looked not only at ethnic minority directorships, but also at the representation of ethnic minorities among senior management. At the director level, the report noted that directors from an ethnic minority represented 19% of director positions among the FTSE 100 companies and 13.5% of director positions among the next 250 FTSE companies (a notable increase of 2.5 percentage points from 2022). As of December 31, 2023, a total of 250 FTSE companies had met a target of having at least one ethnic minority director by December 2024. FTSE 250 companies were asked to set a target by December 2023 for the percentage of their senior management who self-identify as being in an ethnic minority, with that target to be achieved by December 2027.
Among the 82 FTSE 100 companies that provided data, 13% of their senior management was comprised of ethnic minority directors.
According to the 50/50 Women on Boards 2023 Gender Diversity Index Report [PDF], persons of colour represent 18.2% of board seats on Russell 3000 companies (with women of colour at 7.3% and men of colour at 10.9%).
A report from Ascend Pinnacle and the KPMG Board Leadership Centre [PDF] in September 2023 found that, in 2023, Asians occupied 6.4% of board seats on the Fortune 1000 and that 46% of the Fortune 1000 companies had at least one Asian director (an increase from 41% in 2022).
LGBTQ2S+
A study released in October 2023 [PDF] by the Association of LGBTQ+ Corporate Directors and Professor Wouter Torsin at HEC Management School, University of Liège, found that 1.3% of U.S. NASDAQ board seats were occupied by directors who identified as LGBTQ+ in 2022.
Despite the progress that has been made to date to increase the proportion of women on public company boards, progress has slowed and disclosure regarding representation at the executive level suggests that progress will continue to slow or stall.
Disabilities
The Disability Equality Index, a joint initiative of Disability:IN and the American Association of People with Disabilities, now includes 750 companies that voluntarily submit information about their disability inclusion practices. The 2024 Disability Equality Index notes that 11% of the companies in the U.S. market included in the index have a director who identifies as disabled (a notable increase from 7% in 2023) and 8% of the U.S. market companies included mention disability in the documents that govern director nominations.
Despite the progress that has been made to date to increase the proportion of women on public company boards, progress has slowed and disclosure regarding representation at the executive level suggests that progress will continue to slow or stall. Further, disclosure regarding the representation of persons with other diversity characteristics confirms that board and senior leadership representation of these groups is well below their representation in the general population.
