For a number of years now, research has demonstrated that there is a compelling business case for having women on corporate boards. Whether you look at the ROE or related metrics, statistics demonstrating that female directors pay more attention to oversight on audit, risk management and management performance, or the linkage between women directors and an increased ability to attract and retain female talent, there is a growing consensus that having a critical mass of women directors leads to better corporate performance.
Given the data, Canadian corporations should be concerned that only 14.5 per cent of board seats in corporate Canada are held by women, and that this represents only a .5 per cent increase since 2009. Even worse, considering more and more Canadian companies compete globally for markets and talent, Canada is lagging behind other countries including the U.S., Germany, the United Kingdom and Australia - and the gap is increasing each year. In fact, a full 40 per cent of Canada's most important corporations do not have a single female board member.
It is for this reason that the Federal government and some provincial governments are looking for ways to accelerate the pace of creating more diverse boards. On April 5, 2013 Rona Ambrose, Federal Minister of Public Works and Government Services and Minister for Status of Women, announced that the Federal Government was establishing an advisory council to promote the participation of women on public and private corporate boards.
In making the announcement, Minister Ambrose recognized the business case for having women on boards:
"Increasing opportunities for women to serve on corporate boards makes good business sense for Canadian women and for Canada's economy," said Ambrose. "Businesses with more women on their boards are more profitable and routinely outperform those with fewer. The role of the advisory council will be to advise our government on how industry can increase women's representation on corporate boards."
The Federal Government's advisory council includes Beverley Briscoe, Anne Giardini, and Tracy Redies from B.C. The advisory council's goals include making recommendations on how industry and government can track and measure progress in this initiative and what tools, if any, government should employ to achieve this goal. The advisory council is tasked with coming back with recommendations for government by this coming fall.
Seven years ago, the Quebec legislature took steps to mandate equal representation of men and women on that province's public sector corporations by enacting legislation which set a five-year target for achieving equal numbers of men and women directors. Whether or not you agree with affirmative action, the legislation was effective - by 2011 the overall percentage of female directors was 52.4 per cent, despite the fact that not every corporation achieved the 50 per cent target. Presumably, this action will have some a trickle down effect on private sector corporations.
Yet another approach is being considered by the Government of Ontario. It has announced that it would be working with the Ontario Securities Commission to enact regulations which would require publicly traded companies to disclose their goals regarding representation of women on their boards, and to assess their progress annually. It is proposed that failure to do so would result in these companies having to explain themselves. This approach is commonly referred to as the "comply or explain" system of ensuring corporate governance objectives. Initially introduced in the UK, "comply or explain" initiatives are viewed as an alternative to mandatory quotas and regulations. At its heart, is the business principle that "what gets measured, gets done."
While "comply or explain" initiatives are usually considered to be a better alternative to setting quotas, they have had mixed success depending upon the influence, or perceived influence, a negative report or poor results would have on the corporation's shareholders or stakeholders. On the other hand, "comply or explain" initiatives have the benefit of avoiding the unintended, negative consequences of affirmative action initiatives. Ambrose has put together a talented group of individuals on her advisory council. It will be interesting to see what advice and recommendations the advisory council have, and whether it is able to convince Canadian corporations that the ROI of having a critical mass (if not 50 per cent) of women on boards, is excellent.
This article was originally published in the Vancouver Board of Trade's July 2013 edition of Sounding Board.
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