Four years after the Ontario Securities Commission introduced its comply-or-explain disclosure policy, Canada has seen measurable improvements in the number of women sitting on corporate boards.
Among S&P/TSX composite index-listed companies, the percentage of women on boards has increased to nearly 25 per cent, up from just 11 per cent in 2013, according to a new report by TD Economics.
“I was encouraged by the amount of progress seen in the post-policy era,” said Leslie Preston, a senior economist at TD and a co-author of the report, during an event hosted by the Responsible Investment Association on Wednesday. “I think we can say that policies that were voluntary and really encouraged transparency and measurability so that investors had the ability to hold companies to account have helped move the needle.”
The OSC’s comply-or-explain policy requires most companies listed on the S&P/TSX to disclose the number and percentage of women on their boards and in their C-suites; to share if they have a policy on nominating female directors and how gender representation is considered in the board and executive officer appointment processes; and if they have adopted targets for either level.
Most notable in the report’s findings, said Preston, was the fact that firms of all sizes are making progress. A particular challenge for Canada is the high number of smaller publicly listed companies, which make up 63 per cent of the index, and the number of women on boards is highly correlated with the size of companies.
“Larger companies tend to be further along in terms of having more women on their boards, but really progress has been made at all levels,” she said.
The report found that smaller firms, identified as companies with less than $1 billion in revenue, had an average of 22.4 per cent of women on their boards in 2018, up from just 10 per cent in 2014, before the policy was implemented. Larger companies, with more than $5 billion in revenue, are now sitting at an average of 30.9 per cent women on their boards, up from around 20 per cent in 2014.
However, Preston noted smaller companies will have to continue to add more women to their boards in order to truly move the dial on gender diversity. “If you do the math, if all the small firms in Canada had three women on their board, Canada’s percentage would jump to 34 per cent,” she said. “To get that aggregate number, we need more progress by small firms.”
Another heartening finding, according to Preston, was the dwindling number of companies with no women on their boards and the accompanying rise in firms with three or more women. In 2013, 43 per cent of companies on the S&P/TSX had no women on their boards, but that share has plummeted to 7.5 per cent in 2018.
“These all-male boards are starting to become a lonely minority,” she said, noting the percentage of firms with three or more women on their boards has increased to almost 40 per cent. That’s particularly positive because research has shown three women is the critical mass required for female board members’ opinions to be considered on their own merits, rather than as a woman’s view, said Preston.
The report also noted five sectors have reached 30 per cent women on boards or better: health care, consumer staples, finance, telecoms and utilities. The remaining sectors, including Canada’s main sectors of materials and mining and energy, hover around 20 per cent.
While the report was generally positive, it noted the increase in female board members across corporate Canada hasn’t translated to a corresponding rise in female executive officers. In the past four years the percentage of female senior executives on TSX 60-listed companies has barely moved, from 15 per cent in 2015 to 18 per cent in 2018.
“We haven’t necessarily seen this trickle down to the senior executive levels,” said Preston. “You could say that wasn’t necessarily an explicit goal of the board policy, but I think it is indicative that we have a lot more work to do at corporations in terms of trying to get more women up in the executive ranks.”
The report, which also looked at Canada’s progress in relation to other countries, found both countries with quotas for women on boards, such as France and Norway, and those with comply-or-explain disclosure policies, including Australia and the U.K., struggled to improve executive level diversity.
Relative to other countries, Canada is now holding its ground, said Preston. In the years prior to the OSC’s policy, it had slipped to 11th place internationally in the percentage of women on boards, but Canada is now in seventh place.
In the coming years, Preston said she’ll be watching the number of companies reporting one or two women on their boards. Currently, about 55 per cent of the S&P/TSX are in that group, she said, and that number has stayed relatively consistent as companies with no women on boards added one and companies with two moved into the three or more slot.
But she noted it could be a sign of “twokenism,” a phenomenon that describes companies mimicking the social norms of their peers by putting two women on their board and considering they’ve met their diversity targets.
“I think that is something we need to be vigilant of — whether corporate boards have really changed their nominating process,” she said. “Has there been fundamental change on that front or have they just . . . done enough so they don’t look so bad?”
Preston said there is still plenty of room for improvement in the coming years and investor initiatives that are just starting to take hold now, such as the 30% Club’s 2017 promise to achieve a minimum of 30 per cent women on S&P/TSX companies by 2022, could continue to move the dial.