Three business women

Canadian companies have work to do at improving the representation of women on their boards of directors, but a new report argues that the prevailing disclosure policies and market-driven measures should be given more time to work.

In a recently published report, TD Economics finds Canadian firms have made progress at improving board representation for women over the past few years, since the Ontario Securities Commission (OSC) adopted the first “comply or explain” policy in this area in 2014.

To date, that policy has proved “highly effective in a number of areas,” the report says, noting that it has been followed by a “notable increase” in the proportion of women on boards, and a drop in the number of boards with zero women (from 40% in 2014 to just 10% in 2018).

Additionally, the report finds that “disclosure policies appear as effective at increasing women on boards as quotas” over time.

That said, the report also notes that there is still a long way to go at further improving gender representation. “Most publicly traded companies fall short of the important minimum 30% threshold that constitutes critical mass,” it notes.

“Research shows that having a minimum of three women on a board represents a tipping point in terms of influence and financial performance. This is because the minority gain a reasonable level of critical mass where contributions cease being representative of that particular group, and begin to be judged on their own merit,” the report says.

The data also shows that small companies and companies in the resource sectors are particularly lagging. And the report says disclosure policies haven’t improved the representation of women in senior executive roles.

Moreover, on the global stage, Canada’s improvements in board representation have been surpassed by other countries. While the share of women on boards in Canada has jumped from just 12.4% in 2009 to 27.0% in 2018, the country also dropped from sixth place to 10th place among the top 15 industrialized economies on this metric.

Nevertheless, the report recommends against further action by policymakers at this point.

It notes that institutional investors and proxy advisors are increasingly pushing companies to improve their gender diversity, and that more time is required to assess the combined impact of regulatory policy and growing shareholder pressure on corporate behaviour.

“The initiatives currently underway by investors should be given time to generate results before any adjustments to the current policy are considered,” the report recommends.

“If in a few years it is evident that progress has reached a point of stasis, then it might be time to consider designing targeted policy at the trouble spots,” it concludes.