“Comply or explain”Ontario’s securities regulator looks to increase women in leadership positions
The Ontario Securities Commission (OSC) is considering new reporting rules aimed at increasing the number of women on boards and in senior management in companies listed on the Toronto Stock Exchange (TSX). The proposal includes seven recommendations based on a “comply or explain” approach. This would require companies to disclose the consideration given to the representation of women in executive and board positions when making appointments, or else explain why they were not disclosing this information. The proposal falls short of calling for mandatory quotas and would not apply for venture exchange companies.
Women currently make up a little more than 10 per cent of board members on companies listed on the TSX. That number is even lower in the mining industry. Women accounted for only 1.4 per cent of CEOs, 5.3 per cent of directors on boards, and 12.3 per cent of senior officers in mining companies, according to a 2012 report called Creating Gender Inclusive Leadership in the Mining Industry, compiled by the Centre for Women in Politics and Public Leadership with support from Xstrata Nickel. Moreover, PricewaterhouseCoopers’s (PwC) Mining for Talent report found that 43 per cent of S&P/TSX composite index mining companies had all-male boards.
Last spring, the Ontario government asked OSC to undertake a review and public consultation process looking at disclosure requirements for gender diversity among directors and executives and to provide recommendations by fall 2013. In doing so, Ontario joined the growing list of jurisdictions worldwide including the United Kingdom, France, Norway, Germany, and Australia that have taken similar steps. Jo Anne Matear, OSC manager of corporate finance, said in coming up with its proposed amendments, OSC looked at requirements in other jurisdictions, while also conducting surveys, and consulting academic research and other empirical studies.
The OSC’s resulting consultation paper was published last July. In addition to the reporting of numbers, the recommended changes to the disclosure rules would require companies to reveal whether they have director term limits, whether there are policies related to female board inclusion, as well as to account for whether, and how, potential female directors and executive officers have been identified and evaluated. “We went with the ‘comply or explain’ disclosure approach because we do think that it allows issuers flexibility to adopt policies and practices tailored to their particular circumstances and that is consistent with our corporate governance disclosure approach in general,” said Matear. “We did not propose quotas in the consultation paper but we did receive comments back from stakeholders regarding that and there was very limited support for going that route.”
Back in the early 2000s, when Norway first began discussing the possibility of introducing quotas, there was also little support for it in the country. But by 2006, Norway had introduced a 40 per cent quota with drastic sanctions for non-compliers that included the risk of the company being dissolved. The number of women on boards jumped almost overnight to more than 36 per cent. But more than 100 publicly listed companies went private, with two-thirds admitting they did so in part to avoid the quota. Despite the increase in the number of women on boards, in 2013 there was still not a single female CEO among the 25 biggest companies on the Oslo stock exchange and there was only one woman as chief financial officer.
One of the arguments for the “comply or explain” approach over enforced quotas is that the process itself raises awareness within companies that leads to a more genuine embracing of diversity. “I think the single most important contributing factor this rule will have is that it forces this discussion onto the boardroom agenda. You can’t ignore it,” said Stan Magidson, CEO of the Institute of Corporate Directors, during a round table discussion about the rules last October. “You have to put out a public disclosure document to say this will be on the agenda, what is our approach to diversity. Companies will actually have to sit down and decide whether they’re going to embrace diversity.”
Australia introduced “comply or explain” rules for publicly traded companies in January 2011, and it only took two years for the number of companies with diversity policies to skyrocket to 90 per cent. “But there wasn’t the significant jump in the percentage of board seats held by women,” said Pamela Jeffery, founder of WXN, the Women’s Executive Network. Having learned from the Australian example, WXN is recommending the inclusion of targets and would like to see more measurable objectives defined in the OSC rules. “We’d like to see more numbers around the process of identifying women,” said Jeffery. “How many were interviewed in putting together the short list? Did the mining company hire a search firm to assist them with the process? We’d like to see more specificity around the process revealed to get more to what we think is the core issue.”
There is a growing body of research that points to the financial rewards of a diverse board. For instance, PwC’s Mining for Talent study found that, of the top 500 mining companies ranked by market capitalization, the 18 mining companies that had at least 25 per cent representation of women on their boards had 49 per cent higher average net profit margins than the average net profit of those 500 companies in 2011. “The reality is shareholders are more aware of the business case for diversity in executive leadership teams and on boards, and those shareholders are going to be increasingly expecting companies to make sure they are leveraging that advantage,” said Monica Banting, senior manager of PwC’s audit and assurance group and a leader with Shine, the company’s mining women’s executive network.
Clare Beckton, executive director of the Centre for Women in Politics and Public Leadership, who headed the Creating Gender Inclusive Leadership report, said having a board comprised of members with similar perspectives and experiences is a huge problem for organizations. “If you have and continue to bring in people who are similar, which is what currently happens with boards and senior executive teams, then you get into ‘same-think’ and that gets you into trouble, particularly in a rapidly changing society where you have very complex challenges,” she said. “You need that complexity of thinking that diversity brings.”
That core issue is the perception that there are not enough women executives qualified to be board members, particularly in the mining and energy sectors. “Mining has been a very challenging culture for women and I think the way the industry markets its work has often not been very appealing to women,” said Beckton. “It’s very difficult to be an early adaptor if you come into an organization and there are no role models at the top. I’ve said to a number of leaders in the mining sector, you need to look more broadly. You don’t need someone who has expertise in a mine to be a VP of operations. If you look outside of the industry, you can bring in new ideas and approaches. We see that in every organization. When you bring in people from different areas, it injects new ideas.”
The public comments period closed on April 16 and OSC executive director Maureen Jensen said the commission will analyze the feedback it receives before making its final proposal. The rules, she added, will have to be approved by both the commission and the Ontario finance minister. “We’re looking to have it all in place for next year’s (April) proxy season,” she said.
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