A recent Ontario Securities Commission (OSC) proposal to amend corporate governance practices would require certain publicly listed companies to disclose the number of women on their boards of directors and in their executive offices.
In turn, that could encourage greater gender diversity at these companies and result in better-performing stocks. That’s because multiple studies indicate that companies with more women in top corporate positions achieve greater financial success than firms with few or no women in such positions.
New York-based consulting firm McKinsey and Co. Inc.‘s Women Matter 2013 report states that the firm’s research found that “companies with a ‘critical mass’ of female executives perform better than those with no women in top management positions.”
Similarly, Switzerland-based Credit Suisse Group AG‘s 2012 research analyzing the performance of more than 2,000 global companies found that firms with women on their boards of directors fared better in terms of share-price performance and return on equity than companies with boards that lacked representation by women.
The reason for this, suggests Jennifer Reynolds, president and CEO of Women in Capital Markets in Toronto, is that a board of directors or management team with greater gender equality results in more diverse opinions.
“The tough questions are being asked in the room, there’s less ‘groupthink’,” Reynolds says. “So, you’re bringing different perspectives to the table. You’re having a better dialogue and a better debate in those boardrooms.”
The OSC, for its part, believes that its proposal to amend Form 58-101F1 of National Instrument 58-101: Disclosure of Corporate Governance Practices will enhance corporate governance and benefit shareholders.
“We’re really interested in ensuring that investors are comfortable that there are rigorous and effective processes for governance in the public companies,” says Mary Condon, vice chairwoman with the OSC. “Enhancing the participation of women at the board table and in senior management positions makes sense from that point of view.”
The OSC’s proposed amendments include: Toronto Stock Exchange (TSX) and other non-venture listed issuers having to disclose: their policies regarding the representation of women on their boards; any targets for women in board appointments or executive officer positions; and the consideration of representation of women when considering new appointments.
These proposed changes follow a public consultation that Ontario’s provincial government requested in June 2013. The consultation was intended to consider the implementation of a “comply or explain” disclosure model for TSX-listed issuers regarding their gender diversity policies and practices at the board and senior-management levels – and to explain the lack of those policies if that was the case.
During this consultation, the OSC also sent a survey to 1,000 TSX-listed issuers, asking questions regarding the representation of women on their boards and in senior management, and the adoption of any diversity policies. Among the 448 issuers that responded, 57% do not have any women directors and 53% stated that women hold less than 10% of their executive officer positions. Among the respondents that appointed new directors at their last annual general meetings, 88% of those newcomers were men.
Seeing many issuers report a lack of any women board directors, Condon says, suggested that the OSC needed to get involved.
This level of regulatory involvement in the form of a potential “comply or explain” model – as opposed to a quota system – would suit Canada’s economy better, according to Toronto-Dominion Bank‘s (TD) Get On Board Corporate Canada report, as it won’t force quotas on firms that may find it difficult to increase the representation of women on their boards.
TD’s report, released in 2013, states that firms in the resources and materials sectors dominated half of the S&P/TSX composite index in 2012. That year, only 20% of people working in mining or oil and gas extraction were women, according to Statistics Canada.
“With a relatively thinner pipeline of women within the resources sector,” the TD report states, “this can present a challenge to recruiting more women onto their boards.”
However, countries with similar economies to Canada have made great strides in this area, says Beata Caranci, TD’s deputy chief economist: “We saw much smaller countries that have the same barriers that we have with heavy resources companies, such as Australia and New Zealand, leapfrog over us in no time.”
The reason for this, Caranci says, is that these countries implemented their own “comply or explain” models. The Australian Securities Exchange amended its corporate governance principles in 2010, requiring companies to disclose the number of women employees in the organization, in senior management and on the board of directors.
In 2010, women made up 10.7% of the directors on the boards of companies listed in the S&P/ASX 200 index, according to research from the Australian Institute of Company Directors. That number increased to 17.3% last year.
The U.K. also has amended its corporate governance code regarding women. The changes came into effect in 2012; within a year, female representation on FTSE 100 boards doubled.
The OSC is accepting comments on its proposals until April 16. Should the amendments go into effect, issuers would be required to disclose details about gender diversity annually.
Should the proposals go into effect, says Condon, the OSC will review the data after three years to see if there has been any improvement, then decide if further steps are needed.
© 2014 Investment Executive. All rights reserved.