Do you believe women are inferior to men? If the answer is no—and I hope it is—then we all agree where Canada should be headed. Given that women are equal to men, and the fact that they make up roughly half the population, eventually they should occupy half the seats on corporate boards.
Sure, it’s a simplistic argument, but it’s important. It means that when we discuss policies to increase the number of women on boards, we’re not arguing about where we’re going—we’re just arguing about how to get there.
Last week, this suddenly became a more pressing concern. Ontario’s minister responsible for women’s issues, Laurel Broten, announced that the Government of Ontario will work with the Ontario Securities Commission to develop new rules designed to get more women onto boards.
Specifically, the provincial government proposed forcing companies to either set up diversity policies that include specific goals for hiring female board members, or explain why they refuse to do so. The approach, called “comply or explain,” isn’t new; it’s modelled on a similar program in the U.K. Over there, the government introduced a voluntary program back in 2010 that urged 25% female representation in the boardrooms of FTSE 100 companies by 2015. Over the two years since the program was introduced, female representation grew from 10.5% to 17.3%, and it looks like the target will be met.
Other countries have gone even further, imposing strict government-set quotas on public companies. Norway mandates 40% women on boards, as does Spain, France and Iceland. Belgium and Italy mandate 33%. All of these countries have more women on their boards than Canada, where women currently make up somewhere between 10% and 13% of board members.
It’s clear that if you measure the success of these programs purely on the basis of whether they get more women into board seats, they absolutely work. But are there any damaging side-effects in the process? Most of the opponents to setting board quotas aren’t concerned about whether they will actually result in more women; they worry that quotas, even if self-imposed, will result in tokenism and unqualified hires.
It turns out such fears aren’t entirely unfounded. A University of Michigan study that looked at how Norway’s 40% quota affected corporate profits found, in fact, that there was a slight negative effect. But other studies have found marginal improvements. So let’s say we split the difference and conclude that the overall effect of quotas on corporate profitability is likely no real effect at all. Then, let’s go one step further and look at how companies who have hired women on their own have fared: in those situations, a 2010 McKinsey & Co. study found that companies actually have better financial performance.
That’s why I think the Ontario government got it right. A voluntary program means it’s less likely corporations will be forced to hire unqualified board members to meet quotas. Meanwhile the program will help us break out of the rut we’ve been stuck in for almost a decade. Plus, as more women serve on boards, there will be more qualified women to choose from.
Given the prospects for both greater equality and greater profits, I’m having trouble seeing the downside. Win-win proposals like this are rare in life and in business. This is one proposal that business should embrace.
Duncan Hood is the Editor of Canadian Business.
Economy
How to hire more women without hurting profits
It's a win-win.
By Duncan Hood
Do you believe women are inferior to men? If the answer is no—and I hope it is—then we all agree where Canada should be headed. Given that women are equal to men, and the fact that they make up roughly half the population, eventually they should occupy half the seats on corporate boards.
Sure, it’s a simplistic argument, but it’s important. It means that when we discuss policies to increase the number of women on boards, we’re not arguing about where we’re going—we’re just arguing about how to get there.
Last week, this suddenly became a more pressing concern. Ontario’s minister responsible for women’s issues, Laurel Broten, announced that the Government of Ontario will work with the Ontario Securities Commission to develop new rules designed to get more women onto boards.
Specifically, the provincial government proposed forcing companies to either set up diversity policies that include specific goals for hiring female board members, or explain why they refuse to do so. The approach, called “comply or explain,” isn’t new; it’s modelled on a similar program in the U.K. Over there, the government introduced a voluntary program back in 2010 that urged 25% female representation in the boardrooms of FTSE 100 companies by 2015. Over the two years since the program was introduced, female representation grew from 10.5% to 17.3%, and it looks like the target will be met.
Other countries have gone even further, imposing strict government-set quotas on public companies. Norway mandates 40% women on boards, as does Spain, France and Iceland. Belgium and Italy mandate 33%. All of these countries have more women on their boards than Canada, where women currently make up somewhere between 10% and 13% of board members.
It’s clear that if you measure the success of these programs purely on the basis of whether they get more women into board seats, they absolutely work. But are there any damaging side-effects in the process? Most of the opponents to setting board quotas aren’t concerned about whether they will actually result in more women; they worry that quotas, even if self-imposed, will result in tokenism and unqualified hires.
It turns out such fears aren’t entirely unfounded. A University of Michigan study that looked at how Norway’s 40% quota affected corporate profits found, in fact, that there was a slight negative effect. But other studies have found marginal improvements. So let’s say we split the difference and conclude that the overall effect of quotas on corporate profitability is likely no real effect at all. Then, let’s go one step further and look at how companies who have hired women on their own have fared: in those situations, a 2010 McKinsey & Co. study found that companies actually have better financial performance.
That’s why I think the Ontario government got it right. A voluntary program means it’s less likely corporations will be forced to hire unqualified board members to meet quotas. Meanwhile the program will help us break out of the rut we’ve been stuck in for almost a decade. Plus, as more women serve on boards, there will be more qualified women to choose from.
Given the prospects for both greater equality and greater profits, I’m having trouble seeing the downside. Win-win proposals like this are rare in life and in business. This is one proposal that business should embrace.
Duncan Hood is the Editor of Canadian Business.