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 .
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 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 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 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 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 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 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 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 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 .
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 . 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 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 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 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, Mr. Chair, and thank you for being here, Mr. Minister.
Quite frankly, the notion of a five-year review is absurd. When you look at where we are right now, with the length and duration to actually pass this legislation and get a review, and if there's a requirement to look at legislation again, the most likely date is 2023-24. Also, that's if the Parliament of that day...because there will be an election in between, which will also mean there could be an extenuation of time that goes behind the normal process so you're most likely looking at late 2024, if not 2025. Then that Parliament has to actually make it a priority and start to do that review, as well. Also, if there are amendments, then you're probably looking at another two years to get it through the Senate and passed.
Here we have a situation where 35% of women have MBAs in Canada. I know that in previous questioning you mentioned that it would be a concern for you if it went down to 17%, but we're actually at 20% right now—and nearly 21%—so that would even be a step back.
You didn't mention in your remarks that there are other options. You didn't talk about the quota systems that have been legislated in Norway and France, which have by far the two highest responses because they're not just done with a big giant push of the button, so to speak. There are working arrangements that go into those models, and you haven't mentioned those. You did mention a few other nations, and one of them is already lagging behind us.
The problem I face is that the whole issue of diversity is a made-up definition they get to have. They get that type of a luxury, which isn't often provided for employers. Especially in my background as an employer for youth at risk, for diversity, and also for persons with disabilities.... Also, persons with disabilities—by the way, if you don't know—have a 50% unemployment rate. The margins for that are just totally unacceptable, and almost none are represented on any board, given that there are just a few examples out there.
Let's go to the question I'd like to ask. Company X decides, Mr. Minister, they know now what you're going to do is comply or explain. They have basically until 2024, or more likely 2026 or 2027, depending upon whether they really know the parliamentary process. They come back and it's up 1% or 2%. What specifically can you do if they basically just say that they don't know if they'll even be around on this board again, especially with the boards that have people coming and going and where education will be a constant requirement?
I actually find this entire process quite frustrating because this is a missed opportunity. I just want to know specifically what your powers are, or those of the new minister. Most likely it won't be you, because either you'll be Prime Minister at that time—which will destroy Canadians, but anyway I'm just joking—or you'll be something else. But the probability is that another minister most likely be sitting in this situation and somebody else like myself will be sitting here asking the question. What can you then do specifically to that company?
First, I want to thank you for your question and your passion. I share that passion, and so do many of our colleagues at this table. We really want to see better representation at the board level, and that's why we're pursuing this piece of legislation.
To your first point with respect to the timeline of five years, I just want to highlight the fact that once this legislation is put in place we will allow companies ample time. As I mentioned, there is a shareholder democracy component to this as well, so we're going from slates to the individual election of the board, director, members, and so on.
The idea is that we will give them a few years to determine, first, what their policies are, and second, better representation. We have to give them a little bit of runway. I think a year or two might be too tight from my experience on boards, but I would like to hear your feedback on that in a few moments. I would say that we need some runway to determine what kind of progress they are making.
Second, with respect to the definition of diversity, I have a lot of confidence in market forces. If a company does a poor job of promoting diversity, it will have a negative consequence or impact on their bottom line; that's point one. Two, their peers who have a better diversity policy and better return on investment for their shareholders will be able to demonstrate that in a tangible way, and that will impact the company significantly as well.
This is not necessarily about what I can tell a company with respect to how to improve its bottom line. What I'm doing is creating a market condition where individual investors and shareholders can see that this company, for example, has a diversity policy and it really takes into account the diversity that drives innovation, growth, and a better return on investment. This other company does a very—
First of all, I'm a numbers person, so I want to thank you again very much for sharing those numbers because I think they're very important. Numbers tell a very compelling story.
There is some modest progress in some of our urban centres within the corporate world with respect to one area of diversity, which is a better reflection of women in management and at the board level. There is some modest success there, very modest, but there is some success there that we should recognize, as you have highlighted.
Just to take a quick step back, I think fundamentally one of the other outcomes and goals of this particular legislation is to really have individuals see themselves in a leadership role. If you look at our population, you talk about 20% being visible minorities, for example. If they work at a corporation and they don't see themselves reflected at the board and senior management levels, that has a huge impact on their ability to succeed going forward. It really creates these barriers that exist and perpetuates this notion that there's a ceiling, etc.
Those are legitimate challenges with respect to diversity as well, not only for the current context but for future individuals of different backgrounds who are entering the workforce as well.
Also, I've always said that I remember from my experience in the private sector that diversity, again, is not necessarily a reflection of checking off a box and making yourself feel good. It's really about how you provide better outcomes for your customers, how you create a better return on investment, how you drive better business practices, and diversity is very important for that as well. I've seen companies that embrace that do really well.
To answer the question specifically about wanting to see better representation of, in your example, visible minorities, that's the whole objective of this piece of legislation. It's in the diversity policy. It's saying we want you to talk about your diversity policy and if a company does a very poor job and just highlights on, for example, women and excludes visible minorities, aboriginal people, etc., I think it's to their own detriment, especially when their peers talk about this issue and are promoting this.
I'm very confident about our government's objective to promote diversity, in the broadest terms.... We're not here to prescribe diversity with a few key groups. We're not here to talk about diversity through a narrow lens. We want it to be as broad as possible. It's about skill sets. It's about background. It's about perspectives. It's about the different issues you bring to the table, but the bottom line is that the government has shown leadership through this bill to demonstrate that diversity is very important. We have shown leadership that you must have a diversity policy in place, and if you don't, you must clearly demonstrate why not.
I think that kind of public shaming, that kind of public accountability for corporations, is so important in getting them to change their behaviour, and to have better outcomes and see diversity property reflected for all the different perspectives that you've highlighted, including visible minorities and aboriginal people.
That's a very thoughtful question, and I know we've had private conversations about this, so I'm glad you're putting it on the record as well.
To your point on the federal Employment Equity Act, it defines designated groups as women, aboriginal people, persons with disability, members of visible minorities, and for example, even the Charter of Rights and Freedoms sets out factors of discrimination based on race, national ethnic origin, colour, religion, age, or mental or physical disability, just to name a few, and that's not very exhaustive.
The point is that we already have those benchmarks. The point is that's already reflected in pieces of legislation, but I think diversity goes beyond that. As I mentioned, I think those are very important criteria. Those are very important factors, but if I'm a corporation I would go beyond that as well with respect to diversity.
I think that's the kind of imagination, that's the kind of thoughtfulness, that we want to see from corporations, because again, I think this is such a unique opportunity for Canada to really shine. By highlighting diversity at the most senior levels in terms of corporate governance and management, we can really differentiate ourselves.
When I travel now and when I go to China or India, these emerging economies, for example, they're no longer talking about being the jurisdiction of the cheapest products. They no longer want to produce cheap products or services. They want to produce innovative and smart products. In order to do that, they need diversity of thought, diversity of ideas, and diversity of perspective. This is why they look to us with a great deal of envy. It's because of our multicultural society, because of the fact that we promote diversity, because we have social cohesion. That's where I see a real value proposition for us. If we really promote diversity it will allow us to out-innovate and out-think a lot of our international competitors so that our companies can succeed. That's the objective of this legislation.
I am very familiar with the university and colleges model where, when they have a board of governors, for example, in that board of governors they have representation from the student body. If you look at corporations, I think they need to be very strategic and thoughtful about identifying young individuals who have a certain expertise and understanding of technology, trends, or understanding of certain tastes and aspirations of a certain market segment. That's so critical.
Companies need to be forward looking. They need to develop long-term plans. They need to have an understanding of where the market is going, where the trends are going, and where the opportunities exist. To have someone who is younger, who is potentially tech savvy, who understands the changing dynamic a bit differently from some of the individuals in a different age segment, brings in that diversity of thought that I was talking about, that diversity of perspective.
It's also very empowering for young people as well. I think to have that kind of dynamic and dimension is really important. It speaks really to what our has done. Our Prime Minister is the Minister of Youth. He fundamentally believes in empowering young people. He's created a youth council with which he often engages. He often works very closely with them to get their ideas.
Just recently in Calgary, I met with his youth council to talk to them about their views on innovation, their views on the economy, their views on government. It's incredibly impressive to hear their thoughts, their perspectives, which are often not heard in the House of Commons, for example, or often not heard with traditional stakeholders. They bring a very unique perspective. They have a lot of energy. They think in big terms, in a longer-term perspective. I think those are the kinds of qualities, those are the kind of attributes we need to see more of at the board level.
I'm hoping when we're talking about diversity that it's a dimension that companies really understand, appreciate, and focus in on because I think it will create opportunities for them going forward. At the same time, it empowers young people, which is a win-win situation.
Thank you, Mr. Chair, and I will.
I think, though, that it's important to note that we haven't talked about beneficial ownership transparency. That's important and part of this. It's money laundering in Canada. In fact, more money laundering is taking place in Canada because we're known as, basically, a safe haven. In fact, what's taking place is “snow washing”, and it's now described as a common element internationally.
It's ironic that the at the G20 summit said:
||We won't rest until we make sure that we're not only in compliance — but that we're doing a very good job understanding who owns what assets in our country, understanding what taxes people owe.
That's what Morneau said. I guess, maybe, the definitions of work and rest might be the ones that challenge here because, certainly given the Panama papers, this would be an excellent opportunity to write beneficial ownership transparency measures into this bill. We don't have them.
In fact, the Toronto Star did an exposé on what's taking place. Money laundering, as you know, is related to terrorist activity. It's related to drug trafficking, embezzlement—a whole series of things. It also, lastly, is inflating the Toronto and the Vancouver housing market. There are several aspects to this.
Exactly what enforcement is provided here, because I see nothing related to that? Why is the government so reluctant to do that, instead of following through on its commitments to the world?