Considering women account for just over half of the population, Andrew MacDougall understands why — taken in isolation — the state of female representation at the top level of Canada’s public companies can seem a little underwhelming.

According to the most recent round of disclosures, around 34 per cent of seats on the boards of S&P/TSX composite index listees are occupied by women, while 23 per cent of executive roles at these businesses are held by women.

DEI in investments by the numbers

40% — The proportion of women the Ontario Teachers’ expects to see on the boards of large-cap investee companies on developed market indices

34% — The proportion of women currently on the boards of S&P/TSX composite index companies in 2023, up from 18% in 2015

8.3% — The proportion of board seats occupied by members of visible minorities at corporations governed by the Canada Business Corporations Act, up from 6.8% the previous year, according to a 2022 report by Osler

26.5% — The proportion of the Canadian population that identifies as a member of a visible minority, according to Statistics Canada’s 2021 census

17 — The number of board seats held by Indigenous people at CBCA-registered companies, accounting for 0.9% of the total

2.1% — The proportion of CBCA-registered companies with director targets for members of visible minority groups

45 bps — The net excess return out-performance of investment teams in the top quartile for gender diversity over those in the bottom quartile, according to a study by WTW

But MacDougall, a partner and head of the corporate governance practice at Osler Hoskin & Harcourt LLP, says observers need to take a step back to appreciate the compounding effect of the steady, incremental change that’s occurred since 2015 — the first year following the introduction of mandatory disclosure rules set by the Ontario Securities Commission. Back then, the corresponding figures for female representation were 18 per cent of board seats and 15 per cent of C-suite roles.

Read: Institutional investors seeking to plug data gaps in push for diversity

“People say we should have made progress faster and it’s an absolutely fair comment to make, but progress is being made, which is very heartening to see,” he says. “When you look back at where we were eight years ago, we’re in a very different environment.”

Since 2015, Osler has been tracking senior leadership representation at Canadian businesses in an annual report. MacDougall says he was struck by the relative stasis across the first couple of editions, outside of a few early-moving large-cap firms. He pinpoints 2017 as the turning point, the same year the 30% Club Canada’s investor group challenged the S&P/TSX composite to hit a target of 30-per-cent representation of women on boards and executive management teams by 2022.

“That’s where the difference comes,” he says. “The vast majority of issuers made no progress year over year until the institutional investors started requiring it. Once it became a requirement in order to access capital, companies really started to get on board with making a change to their board of directors at least, so they weren’t facing adverse vote recommendations at the [annual general meeting].”

Diverse boardrooms

The Ontario Teachers’ Pension Plan — a member of the 30% Club Canada’s investor group — mirrored the commitment for directors at the more than 100 private companies in its investment portfolio.

Maria Morsillo, the pension fund’s senior managing director of value creation and analytics, infrastructure and natural resources, says it reached the target a year early in 2021 by re-vamping its approach to board construction in a way that allowed it to tap into a more diverse pool of candidates.

“When we took a close look at the skills around each boardroom table and challenged our biases on the best fit, we found candidates with the leadership skills needed to complement others around the boardroom table. This proved to be a win-win scenario, both in identifying qualified women while also rounding out the skillset in boardrooms.”

Read: Ontario Teachers’ focusing on board diversity in proxy voting guidelines

The Ontario Teachers’ has since developed a diversity, equity and inclusion playbook that’s designed to meet portfolio companies “where they are” and provide “tangible suggestions on how to move to the next level of maturity,” says Morsillo.

Earlier this year, the pension fund also used an update to its proxy voting guidelines to boost its expectations for larger companies on developed market indices, setting the minimum representation for female board members at 40 per cent, up from the 30-per-cent target that’s been in place since 2013.

Racial equity audits coming to Canada

After emerging in the U.S. in the last couple of years, racial equity audits appear to be gaining traction north of the border.

Sarah Couturier-Tanoh, associate director of corporate engagement and advocacy at the Shareholder Association for Research and Education, says the audits, which are carried out by independent third parties, are an effective method of holding companies to account for their DEI commitments, as well as measuring the broader impact of their employment and business practices on Indigenous peoples and communities of colour.

“As shareholders, you have to think about the long-term value of the investment and this provides a great risk-mitigation framework.”

Following earlier commitments by the Canadian Imperial Bank of Commerce and TD Bank Group to conduct racial equity audits, the SHARE filed proposals for similar actions during the 2023 proxy season by other Canadian banks, such as the Bank of Montreal and the Royal Bank of Canada. However, the management at both banks fought off the requests at their annual general meetings. The RBC proposal came closest to approval, with 44 per cent in favour, while the BMO vote reached 37 per cent in favour.

“I think we’ll be seeing more of that type of proposal in the near future,” says Osler’s Andrew MacDougall.

In a statement to Benefits Canada, Anna Murray, the plan’s global head of sustainable investment, said the move was partly inspired by recent developments in Europe. For example, U.K. public companies that fall short of 40-per-cent female board representation are already required to explain the failure to the country’s financial services regulator, while companies in the E.U. will soon risk fines for failing to comply with a legally binding 40-percent threshold for the “underrepresented sex” on boards, once recently passed legislation kicks in fully in 2026.

“Although we still consider a 30-per-cent goal to be meaningful, we’re raising the threshold to challenge public companies in developed markets to keep improving as we strive for truly diverse and representative boards.”

Expanding approach to inclusion

Jennifer Coulson, who chairs the 30% Club Canada’s investor group in addition to her role as senior managing director and global head of environmental, social and governance at the British Columbia Investment Management Corp., welcomed the Ontario Teachers’ move.

“The club has 30 per cent in its name, but that was never meant to be the ceiling. It’s great they’re upping the bar.”

The investor group recently updated its own statement of intent, broadening its approach to inclusion to encompass representation for members of the Black, Indigenous and other visible minority communities, as well as LGBTQ2S+ people and persons with disabilities. The BCI followed suit with a similar expansion of its diversity expectations in its new proxy voting guidelines.

Read: BCI’s new proxy vote guidelines address board diversity at Canadian companies

“The numbers are not as strong on racial or ethnic diversity, so clearly there is some work to be done there,” says Coulson. “These kinds of initiatives, where we come together very collaboratively with a common message, have been very effective and, hopefully, will make a difference on the broader diversity question once we look back after a few years.”

However, neither the investor group nor the BCI included any numerical targets for diversity beyond gender as part of their re-vamps, focusing instead on companies’ development and disclosure of diversity policies and processes — in part because of a lack of reliable data.

While the Canadian Securities Administrators is currently considering proposals to enhance diversity disclosure requirements for public companies across the country, Coulson says there isn’t currently enough mandated disclosure to construct the kind of comprehensive data set needed for investors to set specific diversity targets.

For now, the Canada Business Corporations Act offers the closest approximation of the state of play, thanks to its requirement — in place since 2020 — for companies governed by the legislation to report on the representation of women, Indigenous peoples, persons with disabilities and members of visible minorities in board and senior management roles.

Read: How Canada’s institutional investors are increasing gender parity

Osler’s most recent dive into the CBCA disclosures, which covered more than 2,500 board positions at 366 reporting companies, found 8.3 per cent of the director seats were occupied by people belonging to visible minorities and 0.9 per cent were held by Indigenous peoples. For contrast, the 2021 Canadian census indicated the proportion of the population identifying with either group was 26.5 per cent and five per cent, respectively.

Still, even without specific targets in place, Coulson says the BCI will be engaging with its investee companies to make sure they understand its enhanced expectations.

Key takeaways

• Institutional investors’ diversity targets deserve a significant chunk of the credit for the boost in female representation among the senior leadership of Canadian public companies, even if the change has occurred incrementally.

• Investors recognize the need for action on diversity beyond gender, but find it harder to set specific targets because of a lack of reliable data. However, that could change if securities regulators mandate disclosure regarding members of visible minorities, Indigenous peoples and persons with disabilities.

• Purely numerical diversity targets have their limits and investors must look beyond board and executive level representation to measure the inclusiveness of companies towards females and visible minorities.

The investment organization hasn’t been afraid to wield its proxy voting power in the past over gender representation, opposing the appointment of more than 700 directors in Canada between 2015 and 2022. “If we fail to see at least one racially diverse or ethnically diverse candidate, then we will take similar action to what we have been doing on the gender diversity side of things. We can start there and, over time, hopefully, as the data gets better, we can continue to evolve that.”

More than numbers, metrics

Recognizing the value of diversity targets, Marielle Brunelle, a spokesperson for the Investor Leadership Network, warns against over-fixating on numbers alone.

The G7-sponsored platform, which represents institutional investors — including many of Canada’s largest pension funds — holding assets worth more than $10 trillion between them, considers DEI to be a major focus. “The second piece we really can’t miss is this inclusion piece,” she says, urging investors to track churn rates at their portfolio companies — not only at the board level, but also among executives and further down the ranks, where many struggle with development and retention of diverse talent.

“Let’s not only talk about those demographics and whether or not they’re represented and have a seat at the table. Let’s make sure they’re supported by policies and programs to actually stay at the table and that we’re not just counting heads for diverse hires and then losing them.”

Michael McKiernan is a freelance writer.