Diversity’s future less than clear

Despite new OSC regulations, the proportion of women directors and senior executives on TSX-listed companies in 2016 is unchanged from 2015. What will it take to move the dial?
By Listed staff

Lack of progress on diversity is “kind of disheartening,” says Beatrix Dart, professor of strategy at Rotman School of Management

Here’s a free tip for any member of the board or senior management of a TSX-listed company. Steer clear of fortune-tellers unless you can bear to hear the following: “I see quotas in your future.”

Not tomorrow, not next year, but not never, either—unless something happens in the interim to spark a dramatic advance in the pace at which gender diversity is increasing in the ranks of directors and C-suite management at Canadian public companies.

For now, it’s hard to draw any other conclusion—given that data collected in the first half of 2016 and published last month shows virtually no change in the proportion of women directors and women executive officers at 738 TSX-listed companies compared to 2015. Specifically, a report released in mid-September by the law firm Osler, Hoskin & Harcourt of Toronto revealed that the percentage of women holding board seats in those companies in the 2016 reporting period sat at 13%, up less than one percent (from 12.1%) in 2015. Meanwhile, the percentage of women executive officers held steady at 15% (see accompanying charts from Osler’s report).

What makes these results surprising, of course, is that they come in the second year that TSX-listed companies are operating under the Ontario Securities Commission’s “comply or explain” regime—a voluntary mechanism designed to boost the number of women on boards and in the C-suite. According to those regulations, companies are supposed to disclose written board diversity policies, set targets for adding women directors and executive officers, or explain why they have not done so.

“I was really hoping to see an increase in the proportion of women directors compared to last year,” says lawyer Andrew MacDougall, a partner at Osler specializing in corporate governance and co-author of the report.

Average % of Women Directors 2016 vs. 2015, based on survey of 738 TSX-listed companies - Click to enlarge

Average No. of Women Directors 2016 vs. 2015, based on survey of 738 TSX-listed companies - Click to enlarge

MacDougall speculates that a possible reason for the lack of advancement is that larger issuers, which tend to be more progressive on the diversity file, had already made a lot of changes to their board composition in 2013 and 2014, once the new regulations were announced. “Therefore, the incremental change for the larger companies between 2015 and 2016 just wasn’t that much.”

As for the vast majority of mid-size and smaller firms rounding out the survey, “it just appears that it hasn’t trickled down to them,” he says. “They just haven’t made those changes yet.”

In an official statement, Huston Loke, the OSC’s director, corporate finance, noted that the OSC is tracking the same data and would publish its own second-year results this fall. “We recognized at the time of adoption [of the new rules] that it will take time for issuers to make changes to the board and executive officer positions,” Loke said. “This is a very important topic to the OSC and we are pleased to see the conversation continuing in the marketplace.”

Beatrix Dart, professor of strategy at Rotman School of Management and director of the Initiative for Women in Business, says the poor progress is “kind of disheartening. But at the same time, she agrees with MacDougall that the companies that are ahead of the curve—professional services firms and banks, in particular—have already added a lot of women. “So I’m not surprised you don’t see a huge jump.”

Along with her work at Rotman, Dart is chair of the steering committee of The 30% Club of Canada, a group that first launched in the UK in 2010 and opened a Canadian chapter in 2014. As the name suggests, the 30% Club has set a target of women holding 30% of board seats and senior executive positions. To join the organization, CEOs and/or chairs of major public companies (mostly male) must pledge to work towards these goals at the own companies while encouraging their peers to do the same. The Canadian chapter now has more than 80 members and a goal of eventually signing up 100.

Both MacDougall and Dart agree that what makes the lack of progress in diversity particularly frustrating is that the steps and measures needed to make it happen are well known.

“We need the boards to show leadership, we need them to expand their search parameters, not just focus on CEOs, that’s too much of a blinder in looking for candidates,” says MacDougall.

For Dart, one of the biggest obstacles is boards that won’t embrace renewal and refuse to adopt term limits. “A lot of companies have added women to boards and what seems to be one of the major factors is whether companies have board term limits or not,” she says. So the challenge in Canada is a lot of companies—over 50%—do not have any term limits. And if you don’t have turnover, there’s no openings—whether it’s for a woman or any other member, young or old, technology literate or whatever. There’s no opening, nothing moves.”

While the numbers don’t show it, both MacDougall and Dart say they are encouraged by the heightened level of discussion and positive support for diversity in business circles generally. “It seems the stars are getting aligned,” says Dart.

“It’s in the public discourse,” agrees MacDougall. “When the OSC was directed to go out there and see what changes should be made, this wasn’t in the public discourse at nearly the degree of the conversations we’re having today. The disclosure obligation has been very good at forcing conversations to happen at the board and when you force conversations to happen, things start to snowball.

“We saw that happen with the original Dey Committee proposals [in the 1990s] on corporate governance. The Dey Committee concluded that if you improved the independence of people at the board table, you would improve decision-making and I would argue that that was exactly right and it absolutely had a profound impact. This is looking at improving the diversity of discussion around the board table and again I think it will have a profound improvement in terms of the approach that boards take and how they discharge their responsibilities.”

Of course, those improvements can’t take hold until the make-up of people at the table starts to change—by whatever means necessary.

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