OSC tries to right the gender imbalance

If the comments submitted on the paper so far are any indication, the OSC is likely to hear that new disclosure may be a good first step, but the regulator will have to demand more if it expects to see more women invited into the boardrooms of Canadian issuers. (The consultation period ended on Oct. 4, just as Investment Executive went to press.)

For the most part, the comments submitted express support for the OSC’s proposal, which would ask companies to “comply or explain” their adherence (or lack of) to new requirements that they disclose their policies regarding gender diversity.

OPPOSITION EXISTS

A handful of comments oppose the introduction of such disclosure requirements and argue that the gender composition of corporate boards is not the business of securities regulators. But, overwhelmingly, those commenting on the proposal support the idea.

To many supporters of the OSC’s initiative, the need to improve the representation of women on corporate boards isn’t simply a question of fairness or political correctness. Rather, numerous observers point to research that has found a correlation between board diversity and corporate performance.

“Canada’s underrepresentation of women in these roles is an issue of economic competitiveness,” says the comment from Women in Capital Markets (WCM). “Other countries have recognized the economic benefits of gender diversity on boards and in senior leadership and consequently have made significant progress [in] increasing the representation of women. As a result, Canada has fallen behind in recent years.”

The WCM comment adds that improved diversity also enhances corporate governance. And the OSC’s consultation paper notes that the regulator expects that this sort of disclosure may influence investment and voting decisions.

So, with these goals in mind, many of the comments suggest that the OSC should be prepared to go further than it proposes in its consultation paper. While most comments support the “comply or explain” approach, there is also concern that it won’t have much practical impact on the actual composition of boards.

For example, a comment submitted by a group of female directors who serve on a number of corporate boards – including a couple of the big banks, TMX Group Ltd. and the Mutual Fund Dealers Association of Canada – suggests that “without meaningful target-setting and reporting against those targets” the OSC’s proposed approach “is unlikely to produce improved results.”

The surest path to improvement is quotas, according to several comments. The response from VanCity Investment Management Ltd. (VCIM) cites the example of Norway, which has achieved 40% female board representation over several years by imposing direct quotas on firms.

While a quota is not an idea that has majority support just yet, some comments suggest that policy-makers ultimately may have to go that route if softer measures don’t do the trick.

SUGGESTIONS FOR THE OSC

“If there is no measurable progress by 2016,” says the comment from the group of prominent female directors, “we would recommend that quotas be introduced by 2018.”

In the meantime, there are a number of suggestions for other steps that the OSC should be taking to make this proposed initiative more effective.

For one, a number of comments recommend that firms should be setting targets for increased diversity. There are also calls for the OSC to monitor companies’ progress and be prepared to step up the pressure if the regulator doesn’t see enough change.

VCIM’s comment, for example, suggests that issuers first should be encouraged to establish a voluntary target of 25%-40% female representation over the next five years, which would be monitored and evaluated during that period. If the voluntary approach doesn’t do the trick, this comment says, quotas for issuers would then have to be considered.

In addition to setting targets and monitoring progress, the WCM comment recommends that firms should be disclosing their policies on term limits for directors. (One of the obstacles to improving board diversity is the low turnover among existing directors.)

The challenges to improving board diversity includes both supply and demand factors. Several of the comments stress that more effort is needed to expand the supply of potential directors and to improve their recruitment.

The comment from law firm McMillan LLP, for example, proposes that the OSC adopt a version of the National Football League’s so-called “Rooney rule,” which was introduced to encourage the hiring of more black coaches and executives in the NFL by requiring teams to interview at least one minority candidate when these jobs become available. Following that approach, the McMillan comment proposes a requirement that issuers interview at least one female candidate for every board opening or senior executive vacancy.

Progress on the gender issue is not likely to come quickly, so the OSC may have to be prepared to be tougher with firms than it’s currently considering.

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