Executive Briefing Canada Issue 2 March, 2015 Your executive compensation resource > Canadian Trends Gender diversity Age diversity International diversity Board sizes Number of meetings > Contact Derek Hirae derek.hirae@haygroup.com t +1.416.815.6375 Wiclif Ma wiclif.ma@haygroup.com t +1.416.815.6377 Hay Group Limited Executive Compensation National Practice 121 King Street West Suite 700 Toronto, ON M5H 3X7 Canada www.haygroup.com/ca Trends in Canadian board practices Effective with the 2015 proxy season, publicly listed companies on the TSX are subject to new disclosure rules as adopted by the Ontario Securities Commission ( OSC ). The amendments to National Instrument 58-101 Disclosure of Corporate Governance Practice and Form 58-101F1 will require listed companies to disclose information on gender diversity and the mechanism of board renewal, with the following key items: The number of females on the board and in executive officer positions, including major subsidiaries (CEO, CFO, head of division or function or policy function); The target number of females on the board and in executive officer positions; The policies regarding female representation on the board; The identification and selection process of female directors considered by the board for election or reelection; and The term limit for directors and other mechanisms of board renewal. Hay Group has examined the board ( Board ) composition and practices of S&P/TSX 60 companies, based on their 2014 information circulars published prior to the full implementation of the new rule. The study identified several key findings that are discussed in this article: Female Canadian directors made up 19% of the entire board population in S&P/TSX 60, similar to the 18.6% of female directors recorded in S&P 500 in the USA. The financial sector had the highest ratio (27%) of female directors. Among S&P/TSX 60 companies, the average age of all directors was 62.7 and the average age of female directors was 58.6, approximately 5 years younger than the average age of male directors. The average director age was 63.1 among S&P 500 companies in the USA. Based on the residency of the directors as a proxy indicator of international diversity, Canadian boards are mainly North American focused. Mining companies tend to have a higher portion of directors outside of North America.
Among all S&P/TSX 60 companies, on average each Board had 12 directors. Financial organizations had slightly more, with 14.3 directors on average. S&P 500 in the USA had about 11 directors on average. On average, Boards conducted 8.6 meetings per annum. Risk committees, especially in the financial sector, had the highest number of meetings (average of 6.7 meetings per year) as compared to other committees (4 6 meetings per year). Only 13 companies disclosed that they had a maximum term of directorship, which was approximately 12 years on average. Information on board renewal was extremely limited. Gender diversity Within this study, a total 719 Canadian board directors was reported, excluding any retirements during the fiscal year. The ratio of Canadian female directors is about 19% of the full board membership. In comparison, our 2014 study indicated that the European Boards had about 23% women, a slight increase from 21% in 2013. Within S&P/TSX60, the financial sector had the highest ratio (27%) of female directors; the energy sector had 16% while the materials sector had 13%, the lowest among all other sectors. Across all committees, a similar ratio (around 20%) of female directors was observed. Risk committees, which were more prevalent in the financial sector, had a higher ratio of 2 female. # of % Male % Female Segment Organizations Financial sector 10 73% 27% Energy sector 15 84% 16% Material sector 11 87% 13% Audit committee 60 78% 22% HR committee 58 77% 23% Governance committee 60 81% 19% Safety committee 27 81% 19% Risk committee 19 7 2 companies 81% 19%
Age diversity Approximately 9 of the directors had age disclosure in respect to the management information circulars. Overall, the average age of all directors was 62.7. The majority fell between ages 60 and 69, with about 20% of the population falling above age 70. On average, female directors were 5 years younger than male directors. Age distribution of all directors - S&P/TSX 60 Age distribution of female directors - S&P/TSX 60 70 and above 19% 70 and above 60-69 4 60-69 41% 50-59 2 50-59 43% 40-49 40-49 10% 30-39 1% 30-39 1% Not available 0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% 50% S&P/TSX 60 companies Male Female Age directors directors directors P75 68.0 69.0 64.0 P50 63.0 65.0 59.0 P25 57.0 59.0 54.3 AVG 62.7 63.7 58.6 S&P/TSX 60 by sector (all directors) Financial Energy Materials Age sector sector sector P75 67.3 67.0 69.0 P50 63.0 63.0 63.0 P25 57.0 59.0 57.0 AVG 62.5 62.8 63.1 International diversity 8% 8% As companies recognize the need to compete and conduct business on a global level, international knowledge is one of the critical success factors. Based on the residency of the directors as a proxy indicator of international diversity, we found that Canadian boards are mainly North American focused. Boards across the largest Canadian companies had 72% and 20% of directors residing in Canada and the USA respectively. Where countries outside of 20% Other Canada U.S.A. 72% 2 6% Female 19% Male 73% 69%
20% Other Financial Canada U.S.A. 7 16% 1 Materials 69% 19% 8% Energy 73% Canada and USA are reported, directors from the UK and Hong Kong are more prevalent. Mining companies tend to have a higher portion of directors outside of North America. As compared to the largest European companies, 64% of European directors are local nationals of the same country. It is estimated that just 8% of the board of directors at the largest US organizations are foreign nationals. Board sizes On average, the Boards had 12 directors. Larger organizations, especially those in the financial sector tend to have a higher number of directors. # of Full directors board Audit HR Governance Safety Risk P75 14.0 5.0 5.0 5.0 5.0 7.0 P50 12.0 4.0 4.0 5.0 4.0 6.0 P25 10.0 4.0 4.0 4.0 3.0 4.0 AVG 12.0 4.5 4.5 4.6 4.4 5.6 AVG # of Full directors board Audit HR Governance Safety Risk Financial 14.3 5.5 4.7 5.3-6.2 Energy 10.7 4.4 4.5 4.7 4.2 5.5 Materials 11.1 4.3 4.2 3.9 4.6 - - indicates committee is not present.
Number of regular meetings On average, Boards conducted 8.6 meetings per annum. Risk committees, especially in the financial sector, had the highest number of meetings (6.7) as compared to other committees. # of meetings Full per annum board Audit HR Governance Safety Risk P75 10.0 7.0 7.0 6.0 4.3 9.0 P50 8.0 5.0 5.0 4.0 4.0 6.5 P25 7.0 5.0 4.0 4.0 3.0 5.0 AVG 8.6 5.8 5.7 4.8 3.7 6.7 One of the 60 organizations did not disclose the number of committee meetings. S&P / TSX 60 breakdown analysis - indicates committee is not present. AVG # of meetings Full per annum board Audit HR Governance Safety Risk Financial 11.0 6.8 6.3 5.2-7.9 Energy 8.4 5.4 5.4 3.9 3.4 6.0 Materials 8.6 5.0 5.7 4.5 4.2 - Given the new disclosure requirements on gender diversity and the mechanism of board renewal in 2015, we are most interested to learn about the issuers target ratio of female directors (and executives) and their board renewal policies. In the near future, Hay Group will further share our insights of the best practices and trends. Data of S&P 500 USA were extracted from Equilar Report.
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