Long way to go to achieve gender equity

Late last year, a handful of Canadian provincial securities regulators – with Alberta and British Columbia being notable exceptions – adopted new corporate governance requirements that demand that non-venture issuers reveal: the number and percentage of women on their board and in executive officer positions; their policies for finding female candidates for their boards; and whether they have targets for the number of female directors and officers, among other things.

Now, following the first proxy season since those measures were introduced, the CSA has assessed compliance with those new disclosure requirements – and uncovered some disheartening findings.

Overall, just 14% of issuers disclosed that they have adopted a written policy for finding female directors and 65% declared that they have explicitly decided not to adopt this sort of policy.

Moreover, half the companies don’t have a single woman on their board, and 40% don’t have any females in their executive ranks.

In addition, just 7% of firms have targets for female representation on their boards – and only 2% have similar targets for the executive suite.

To be sure, the results are not comforting to those who believe that diversity boosts corporate performance and, ultimately, shareholder returns – not to mention representing positive social progress.

But this effort to push greater diversity really is in its infancy, and proponents are hopeful that the new rules signal the start of a positive trend.

Speaking at a roundtable convened by the Ontario Securities Commission (OSC) in late September to discuss the results of the CSA review, Alex Johnston, executive director of Toronto-based Catalyst Canada, a non-profit organization that advocates workplace equity, noted that she was struck by the scarcity of diversity targets among Canadian companies as revealed in the CSA’s review.

Johnston stresses that targets should not be confused with quotas, and that targets are used routinely within businesses to drive results. Thus, setting diversity targets should be no different than setting goals for sales or revenue growth, she says.

The challenge to embrace targets as a tool for improving corporate diversity as just another metric of corporate performance is being taken up by Victor Dodig, the new president and CEO of Canadian Imperial Bank of Commerce (CIBC), who also spoke at the OSC roundtable.

Dodig indicates that although CIBC is among the vast majority of firms that doesn’t have any targets for female representation, the bank will be adopting these objectives in the future.

Indeed, the use of targets – which clearly is minimal in Canada at this point – appears to be a tactic that could start to gain traction.

“Business people respond to targets,” Dodig says. “It’s like giving analysts guidance. You strive to achieve it, and surpass it.”

That said, Dodig also stresses that targets alone aren’t going to achieve much. “Targets without a plan are doomed to fail,” he warns.

To avoid that, he says, companies need rigorous processes for identifying talented female leadership prospects, for uncovering possible gaps in their experience and plans for helping to fill those gaps to nurture promising junior staff into future executives and directors.

The target issue also is likely to get more attention from the institutional shareholder community, which is the ostensible audience for the regulators’ new disclosure requirements.

Katherine Rabin, CEO of San Francisco-based proxy advisory firm Glass Lewis & Co., noted at the OSC meeting that fund- management firms and pension funds increasingly are focusing on the diversity issue, and that there is likely to be more of this in the coming year.

Indeed, she acknowledges that her own thinking on the distinction between targets and quotas is evolving as well.

For example, Glass Lewis has not favoured strict quotas on board diversity in its policy advice to institutional investors, but the firm will be discussing whether to support the use of such targets, Rabin says.

“It will be really interesting to take what I’ve learned here today and go back and talk about targets vs quotas,” she says. “That’s definitely a discussion that we’re going to have.”

Toronto-based Kingsdale Shareholder Services Inc. is on the verge of going further and advocating for outright quotas for board diversity.

Kingsdale’s new report on proxy issues says the firm historically has not supported increased regulation or quotas in this area: “Believing the empirical evidence making this a good idea was so clear. This is a beneficial decision companies should make for their own advantage, not another rule they begrudgingly comply with.”

However, the Kingsdale report also states that quotas may be what are needed to push companies in the right direction: “Given the uninspiring progress over the last year, quotas may be a necessary evil in order to get the improvement required – at least to expedite the mission and close the gap.”

In the meantime, the Kingsdale report states, companies should expect to face increasing pressure from shareholders to bolster diversity. This could mean shareholders withholding votes in nominating committee members if boards lack diversity.

Indeed, by ignoring these issues, companies are sending a negative signal to shareholders and employees, the report says: “Diversity is viewed as a metric for companies that are paying attention. If investors see the new policy doesn’t mean much to you or it appears you aren’t doing anything about it, it raises the question, ‘What else don’t you care about?'”

At the same time, shareholders may yet have the spotlight turned on them as well. Rabin indicated at the OSC roundtable that she recently examined the public disclosure from some of the world’s biggest asset-management companies about their policies on diversity and found many of them lacking.

“Maybe it’s something that the OSC should consider thinking about – that what’s good for the goose is good for the gander,” Rabin suggests. “If you’re asking companies to do all of this disclosure, fund managers and shareholders should do it, too.”

The OSC isn’t ready to go there just yet. In fact, the provincial regulator says that, for now, it’s focused on “measuring and monitoring the impact of the existing rule amendments.”

Nevertheless, diversity issues don’t appear to be going away for issuers, or investors, any time soon.

© 2015 Investment Executive. All rights reserved.