Canada’s “women problem” — woefully low female representation on corporate boards — is firmly in the government’s crosshairs. But activists shouldn’t count on securities regulators pulling the trigger on quotas even if progress is limited, some observers say.
“They don’t have the authority and I don’t think there is the will to do it,” says Frédéric Duguay, partner at Toronto-based corporate governance advisory firm Hansell LLP and a former senior legal counsel at the Ontario Securities Commission (OSC). While the theoretical possibility of quotas exists, Duguay says the regulators’ jurisdiction is mainly limited to demanding more information rather than calling for prescriptive measures.
Like it has in many countries, female representation on Canadian corporate boards has languished in the low teens for years. More than 40 per cent of Canadian boards are still all-male. And yet numerous studies have shown that a homogeneous board is bad for business. The OSC, which oversees the bulk of Canadian listed companies, is tasked with protecting investors.
Time to crack the ceiling
In 2013, women made up only 12.2 per cent of members on the boards of Canadian public companies, according to figures provided by Catalyst, a non-profit organization dedicated to diversity in business. In 1998, when Catalyst started tracking women on boards among Canada’s largest companies, the figure was 6.2 per cent. Globally, Canada sits in the middle of the pack. But it is the only G7 member, apart from Japan, with nothing on its books about gender diversity on corporate boards.
Indeed, more than a dozen governments around the world have concluded that some form of legislation is necessary to speed up progress; several, including Norway and France, have decided quotas are the only option. The European Union is poised to impose a 40 per cent quota for female directors on the boards of EU companies.
Last August, the Canadian Bar Association passed a resolution urging the federal, provincial and territorial governments to require companies to “comply or explain.” Under such a regime, companies would have to adopt policies designed to increase gender diversity, or explain why not.
The OSC has adopted a “comply or explain” policy for companies trading on the Toronto Stock Exchange. At press time, it were expected to take effect on Dec. 31. Regulators in Newfoundland and Labrador, Nova Scotia, New Brunswick, Quebec, Manitoba, Saskatchewan, Nunavut and the Northwest Territories have said they'll adopt the policy, while Alberta has declined and the British Columbia Securities Regulator has said it will observe how the policy works before deciding what it will do.
The thinking behind this transparency push is that shoddy explanations on the part of companies may result in a public reckoning. Firms risk being singled out, especially if peers are moving faster on this issue.
A more muscular approach may be considered. In response to the quota question, the OSC said in an email that it would consider other measures after an assessment in three years. If progress is too slow, it could call for more information, “further amendments… or other regulatory action.”
But for the moment, increasing the amount of information appears to be the limit most are willing to swallow. Despite influential champions like the Ontario Teachers’ Pension Plan, quotas still have very little support, and this is unlikely to change anytime soon.
“Quotas are simply not part of our cultural make-up,” says Carol Hansell, who has served on many boards and is one of Canada’s leading authorities on corporate governance. “I can’t think of a single instance where quotas have been used to solve a problem of this nature.”
It’s also unclear what measures will be taken if change doesn’t happen fast enough.
“I don’t think the OSC will announce a specific target. And I think they would be uncomfortable with that approach at this time,” Andrew MacDougall, a partner at Osler, Hoskin & Harcourt LLP, said in an email. “This is a new area for the OSC and the link to the OSC’s mandate of protecting the integrity of the capital markets is not as clear.”
Firms will be left to guess what numbers the regulators have in mind.
However, the Government of Canada’s Advisory Council for Promoting Women on Boards may have provided a clue on what might satisfy the regulators. Minister of Labour & Minister of Status of Women Kellie Leitch has called for a voluntary national target of 30 per cent female board representation, echoing many academics and advocates who say this is the minimum number for effective change. The minister said she wants firms to shoot for this figure so that “we’re in a position where we’d be considering other options,” according to Bloomberg News.
It remains to be seen how far the government is willing to go, especially since there is little appetite for far-reaching intervention in board decision-making.
“Canadians are not gorers of ox by nature and this could be seen as an ox-goring issue. Don’t underestimate people’s reluctance to change,” said Anne Giardini, who was part of the advisory council for women on boards.
Giardini, who is former president of forest products company Weyerhaeuser and has been active on many boards, says she’s “keeping an open mind on quotas,” but would prefer to avoid them.
Patrice Walch-Watson, a partner at Torys LLP in Toronto, is telling her clients that gender diversity is on the agenda: “There are going to be changes,” she says. “But there’s probably a sector of the population that says this is a waste of time, that Canadian companies are doing just fine and they don’t need these additional burdens.”
However, influential stakeholders, particularly investors, are calling for stiffer regulation if companies don’t take the hint.
“If progress is not made, we believe that the OSC should review what different actions have been taken in different parts of the world and which of those actions have been successful,” Stephen Erlichman, executive director at the influential Canadian Coalition for Good Governance, said in an email. The CCGG represents Canada’s largest institutional investors, which together oversee $2-trillion in assets.
“CCGG does not at this point endorse quotas, although a few of our members think that targeting 30 per cent is appropriate,” Erlichman added.
In response to the OSC’s call for comment last year, several pushed for hard numbers and a specific timetable. They included Patrice Merrin, who made history last June when she was appointed to the board of mining giant Glencore, the last all-male board on Britain’s benchmark index.
“Introduce a target that women must comprise a minimum of 33 per cent of a board’s directors by June 30, 2018, and state, at the outset, that if the targets are not met, quotas will be imposed,” Merrin wrote.
The federal government is also reviewing similar “comply or explain” measures as it updates the Canada Business Corporations Act, though stakeholders and other observers appear less enthusiastic about these changes. “The overall tenor is that if the securities regulator is dealing with it, the federal government will be inclined to leave it,” said Torys’ Walch-Watson.
Making the business case
The extent to which regulators have the right to speed things up in the name of investor protection is a matter of debate, both at home and abroad. Some view this as more of a social justice issue, but most stakeholders agree there is a solid business case for getting more women on boards.
Some studies have shown that gender diversity helps generate better stock returns. And there are other benefits: Anti-corruption experts insist that homogeneous boards are less effective. This is of particular relevance to Canada, which is still working hard to shake off a reputation for tolerating corruption in foreign lands.
Women’s “outsider” status creates an immediate formality where difficult conversations about things like fraud can take place,” said Alexandra Wrage, a global expert on anti-fraud policies and president of TRACE, a business anti-bribery group.
Outsiders shake up the complacency and “clubbiness” of homogeneous boards which can have an immediate impact on promoting good governance, she added.
Will Corporate Canada voluntarily boost the number of women on boards in a timely manner or will these weaker measures mean progress continues at a snail’s pace?
Alison Schneider, a senior manager at Alberta Investment Management Corp., wrote in an email interview that, “given enhanced public scrutiny of the poor state of representation of women on Canadian boards, we remain optimistic that there will be significant and positive change in the coming years.” AIMco says five years is a more appropriate timeframe to gauge whether voluntary compliance is producing results.
Not everyone shares this view. Some see little chance that the OSC’s requirements will accomplish anything beyond exhausting all voluntary possibilities, especially since board turnover is slow.
“The regulator is saying: ‘We’re going to give you three years to improve the situation and the intimation is that tougher regulation is coming,” said Richard Leblanc, a law professor at Toronto’s York University who specializes in board governance. “I am not sure we will reach 30 per cent if we are only at 10 now. We have been at around 10 for several years, and many boards do not have a single woman. There is male entrenchment to deal with,” Leblanc added in an email, after the minister’s announcement.
Many believe larger companies should have little trouble meeting informal targets, but smaller firms, especially those with few senior women in management, will struggle. How regulators will measure progress in this area is also a matter of speculation.
So the question remains: Should businesses be forced to change their attitude about quotas?
“I was at a conference of CFOs today and asked several people how they felt about quotas for women on boards,” said TRACE’s Wrage, who is based in Maryland. “Every single person responded vehemently that they dislike quotas of any kind, but then all but one said it may be necessary in this case because things have moved so slowly.”