Less than a year after its establishment, the Ontario Capital Markets Modernization Taskforce has come back with 70 final recommendations for policy, legislative and regulatory changes intended to make Ontario an attractive capital markets destination globally.
This is the first comprehensive review of Ontario’s capital markets regulations in 17 years, and given the outsized influence of Ontario on capital markets in Canada as a whole, it has been long overdue. Not surprisingly, one of the recommendations is to schedule reviews of both capital markets regulations and the Ontario Securities Commission’s mandate every five years, which is a reasonable timeframe given the pace of change in our economy, investment practice, and investor interests.
A lot has changed since 2003, and we have a lot of ground to cover. Thankfully, the Taskforce members made a formidable effort to lay out a path forward.
Much of the Taskforce report is dedicated to structural changes in the investment industry and capital markets oversight, and we will address those in future posts. But, in keeping with the phenomenal growth in responsible investment and the growing need for a reset in how Canada’s financial industry and corporate sector deals with environmental and social realities, the Taskforce has come back with several recommendations that will be of particular interest to SHARE’s network:
First, the Taskforce notes the slow progress on gender diversity and absolutely glacial progress on inclusion of visible minorities, Indigenous people, and people with disabilities in Canada’s corporate leadership. The report not only proposes that corporate issuers be required to set diversity targets – recommending that publicly listed issuers set an aggregated target of 50 per cent for women and 30 per cent for Black, Indigenous and People of Colour, persons with disabilities and LGBTQ+ people on boards and in executive positions – it also proposes setting a 12-year term limit for most directors, to encourage board renewal.
The Task Force looked for uniform standards for corporate disclosure of material environmental, social and governance (ESG) information, but specifically recommended only mandating climate change-related disclosure compliant with the Task Force on Climate-Related Financial Disclosures (TCFD) standard, as well as broad disclosure of a corporation’s greenhouse gas emissions.
On the whole, the push for improved ESG disclosure is a positive one. That said, SHARE and others had also asked the Taskforce to look at mandating additional relevant environmental and social disclosures, which are not addressed explicitly in the final report, even though the relevance of “social” questions like decent work, inequality and inclusion has been made crystal clear by the pandemic over the past year.
Some of the Task Force recommendations relate to the proxy voting process, whereby shareholders hold corporate management to account through votes on key issues and by electing a company’s board of directors.
On a positive note, the Taskforce adopted a long-time SHARE demand, that corporations be required to hold annual advisory votes on executive compensation (“Say on Pay”), which are currently only voluntary.
The final report also dropped an earlier draft proposal to create a Canadian “no action” process through which securities regulators would rule on the admissibility of shareholder proposals, something SHARE advised the Task Force was unnecessary, legally questionable and potentially problematic for shareholders.
However, the Taskforce did not drop a proposal to give corporations the “right of rebuttal” when proxy advisory firms make recommendations to their private clients on an upcoming shareholder vote. SHARE, our sister organization GIR, and many others told the Taskforce that this is not only impractical and unnecessary, but it will further entrench a duopoly in proxy advisory services by creating much higher barriers to entry for new firms. Further, it grants corporate management increased rights to influence shareholder votes but does not grant a similar right of rebuttal to shareholders that file resolutions, tipping the balance in favour of entrenched management.
At this stage, each of these recommendations is just that – a recommendation. If they are to be embedded in securities and/or corporate law, there is work still to be done. The Task Force proposes that the Ontario government amend and pass its earlier draft Capital Markets Act to include many of the Taskforce recommendations, replacing the current Securities Act and Commodity Futures Act with one comprehensive piece of legislation. The approach, content and scope of legislative initiatives are still to be determined in Ontario, and institutional investors with concerns about the future of Canadian capital markets will need to be part of that process.
SHARE helped convene a large network of institutional investors both here in Canada and in the US to make substantial recommendations to the Taskforce, many of which made their way into the final report. As these and other Taskforce recommendations make their way into new proposed legislation and regulation, SHARE will take steps to promote and improve on those recommendations that help embed environmental responsibility and social inclusion in the regulations that govern Canadian capital markets – and oppose those that set back the work holding corporate management and all parties within the investment chain accountable for their actions and their impacts.