What you need to know about Canada's new diversity disclosure rules
It’s long been known that not enough women have roles in senior leadership or on the boards of public companies in Canada. Since that may not be good for business, or for society, eight provinces and territories have put in place new rules that insist boards be more transparent about who’s making the decisions at the top.
These rules came into effect on December 31, 2014, and they affect most boards in Canada. Here’s an overview of what the board diversity guidelines say, how companies can comply, and what issues are still unresolved in diversity and corporate governance.
In January 2014 the Ontario Securities Commission announced that companies on Toronto Stock Exchange (TSX) will have to start talking about diversity or risk being de-listed.
Companies must detail the representation of women on their boards and in executive officer positions, as well as disclose any plans to boost their numbers. This ‘comply or explain’ approach is not a quota, but a system designed to increase women’s leadership roles over time.
Over the course of 2014, the regulatory bodies in Quebec, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Newfoundland and Labrador, Nunavut and Northwest Territories all agreed to adopt these rules, too. All boards affected must disclose this information in their proxy circulars in advance of their annual shareholders meeting.
The back story
These diversity rules have their origins in 2013, when Ontario Premier Kathleen Wynne asked the OSC to look into the issue of corporate leadership and women. The OSC developed a consultation paper for public comment, held a roundtable and surveyed 1,000 TSX companies.
The federal government, via the Advisory Council for Promoting Women on Boards, then published a report in 2014 that offered a business case for board diversity, and encouraged Canadian companies to dramatically increase their numbers. It recommended Canadian companies aim for 30 percent women on their boards by 2019.
These actions are predated by organizations such as the Canadian Board Diversity Council (CBDC) advocating for change over the last several years. ‘I think people now understand that we don’t live in a perfect world,’ says Pamela Jeffery, founder of the CBDC. ‘But we can do better when it comes to how to run our companies, and everyone can benefit from that.’
This advocacy has been bolstered by academic research, some of which has shown a link between having women on corporate boards and/or in senior ranks and healthy stock performance. This is a finding that’s been inconsistent, however. ‘The research is mixed and no study shows a causal relationship,’ says Anita Anand, a professor with the Faculty of Law at the University of Toronto who has studied corporate governance. ‘While performance may be a reason to increase diversity, it’s not the underlying reason. There are other benefits.’
Female leaders use slightly different decision-making tactics and can bring bigger-picture thinking, compromise and patience to leadership roles. Meanwhile, investors are putting pressure on companies to be run by people who are more like their customers and business partners ‒ both in Canada and around the world. And that means boards that are increasingly female, as well as diverse in other ways.
Lisa Wolverton, organizer of the upcoming conference, The Next Billion: Women and the Economy of the Future in Vancouver, adds: ‘By 2025 more than half the world’s population will have joined the consuming classes, bringing annual consumption up to $38 tn. Women account for 70 percent of that demand. There is an enormous bottom line potential to companies that better understand women as consumers.’
How unbalanced, gender-wise, is corporate leadership in Canada? Here are the statistics:
- 43 percent of companies listed on Standard & Poor’s/TSX don’t have a female board member, while 28 percent have just one, according to numbers released by the Ontario government and collected in 2011
- Women hold 17 percent of board seats for FP500 companies, according to a 2014 report from the CBDC
- 15 percent of Canadian board members are women, according to a survey carried out by the Globe and Mail in 2014, with 32 percent of Canadian boards having no female members at all
- Women made up 22 percent of all senior management positions in Canada in 2011 and held 35 percent of all management jobs, according to Catalyst
- 14 percent of executive officer jobs at Fortune 500 companies are held by women, according to Catalyst’s 2013 numbers
- In 2014, before disclosure rules came into effect, just 25 percent of FP500 companies had written diversity guidelines, according to the CBDC
- 30 percent of women in business say their companies don’t have confidence in the leadership capacity of women, according to Randstad Canada’s Women Shaping Business survey, released in 2014.
The hope with this more transparent approach is that companies will start implementing policies that will, in time, lead to more women in leadership roles. Some techniques companies have found effective include:
- Using a search firm: when company executives hire from their own personal networks, diversity stalls. ‘You get the same people,’ explains Jeffery. A search firm will cast a wider net to find talent, which leads to more women, minorities and leaders in different fields joining a company and bringing in new viewpoints.
- Doing training: unconscious bias training for HR and managers can help people at a company learn to root out their own assumptions about woman and leadership. These training programs often trigger more diverse hiring later.
Some advocating for change wanted these new rules to be about more than disclosure, but be motivated by quotas, such as those used in European nations. For instance, in Norway, the law says 40 percent of a company’s directors must be women. The Ontario Teachers’ Pension Plan suggested companies should have at least three board members by 2020, or be de-listed.
Meanwhile, most advocates on this subject would like to see diversity defined more broadly, and include ethnic background, sexual orientation and disability. Currently, despite the fact that one in five Canadians is from a visible minority, just 2 percent of board seats in our large companies are held by minorities, and only 0.8 percent of those are Aboriginal people.
‘Ideally, we need to look beyond women, but I don’t see that on the agenda at this time,’ says Anand. She adds that true leadership diversity is essential for running viable companies, both for their operations here and their partners abroad.
But she says any kind change at the top is good for the economy. ‘This is a good first step,’ she concludes.
Nicole Guillot is president and CEO of CNW Group