Posted on April 2, 2015

Board Diversity And Women Leadership

Simply put, numerous studies have shown that companies with gender diversity in leadership outperform. Yet, there has been very little real change in the gender makeup of public company boards and senior management over the past decade. With various European countries passing mandatory quota legislation to increase the number of women on boards and Canadian federal and provincial governments calling for a more balanced gender complement, regulators have faced increasing pressure to act.

Improved performance through increased productivity and innovation is essential to our collective economic well-being. There is ample research to show that companies with more women on their boards and in senior management perform better in key metrics including stock performance.

In today’s competitive environment, businesses need to access the widest possible talent pool. Not only are women half of the population, but they are nearly half of the labour force and increasingly they are better educated than men. Women also make an estimated 80 percent of all spending and financial decisions, so it is not surprising that gender diversity is good for business. The recent drop in Canada’s international competitiveness ranking increases the urgency of taking action.

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There is also compelling evidence that companies with women on their boards deliver better corporate governance. Women provide an essentially different point of view as independent directors and add to the boardroom debate and decision-making. It is essential in today’s complex and rapidly changing world for business leaders to have diverse skills, experiences and thought processes.

The Ontario Securities Commission has proposed a comply-or-explain regime to increase representation of women on boards and in senior management. With the OSC’s move to encourage greater representation of women on boards, gender diversity has quickly become a governance issue. This is similar to the policy adopted in Australia in 2009. Female board representation in Australia has almost doubled from 8.3 percent in 1999 to roughly 15 percent today.

According to the 2013 Catalyst Census, the percentage of women on the corporate boards of publicly traded FP500 companies rose from 10.3 percent in 2011 to 12.1 percent in 2013. The trend is even more pervasive among crown corporations, which witnessed an increase from 26.8 percent to 30.4 percent. The news, however, is not so promising digging deeper into the data. While 7.6 percent of FP500 boards report a representation of women that is 40 percent or more, 36 percent of public companies have no women on their boards. It is worth emphasizing, that just under 40 percent of FP500 companies have not one woman on their board, which includes the CEOs.

Under the OSC ‘comply or explain’ proposal, all companies listed on the TSX will be required to report publically their board and senior management diversity goals once a year and to explain in subsequent years if they do not comply with these goals. If nothing else, this could well embarrass companies into doing the right thing. Many well-known brands that service women are not compliant to a recommended goal of three women per board, which when revealed could well lead to customer reactions.

The Institute for Corporate Directors (ICD) supports the “comply or explain” policy. A notable exception is the Ontario Teachers’ Pension Fund which called for a phased in quota of a mandatory three women board members. Generally, however, Canadians do not support quotas because of the fear that tighter government regulation will impede business. Some suggest that there are not sufficient numbers of board-qualified women. This myth needs to be dispelled. There are now highly vetted lists of board-ready women published by Catalyst and WXN (the Diversity 50). As well, global executive search firms also know of many qualified female candidates.