Gender-equity “comply or explain” rules for boards are working—sort of

More than half of the companies listed on the TSX have introduced equity policies, but the results are mixed at best

People sitting around a boardroom table having a meeting

(Sam Edwards/Getty)

Last December, the Ontario Securities Commission introduced new rules that requires firms to disclose the percentage of women on their boards and in executive positions. Seven jurisdictions across the country signed on and the regulator was praised for its “comply or explain” approach.

Six months later, the results are in from a new study commissioned by international business law firm Torys LLP, which examines the impact of the disclosure rules on the Canadian corporate landscape.

For the study, Torys’ researchers analyzed all the proxy circulars filed in 2015 (up until to May 10) from 179 companies listed on the S&P/TSX index (or 71% of the index).

The findings are mixed. The good news is the majority of firms analyzed have revised or crafted internal policies to tackle the gender disparity.

On the other hand, researchers suspect that many of the issuers tailored their disclosure to portray a rosier picture than exists in reality. “We also suspect that some issuers provided disclosure of the segment of their workforce with the most balanced gender make-up,” the study says.

(The study doesn’t reveal which companies are guilty of this, nor does it provide a clear breakdown of performance by company or sector.)

So while the new regulations have kickstarted a conversation about women in senior positions, the next challenge will be implementing these policies in a meaningful way. To that end, the researchers recommend firms focus on filling the pipeline of potential future women executives. This requires making changes to their recruiting strategies, and enhancing mentoring programs as part of a larger employee retainment strategy, the study said.

Here are a few key takeaways from the report (you can read it in full here):

1. The new rule forced companies to make positive change

More than half of the issuers (56%) in the survey sample have adopted formal policies addressing the representation of women on boards — and they’ve been swift about it. Applying pressure on firms was an effective strategy, as the ones that do have policies adopted them sometime between the end of last year and spring 2015.

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2. Large-cap companies are early adopters

This cohort is typically first to incorporate the latest best-practice guidelines, setting the standard for the rest of the sector. Of the financial institutions listed on the S&P/TSX, 77% have diversity policies in place.Their boards are comprised of 34% women on average, compared to 16.4% on average among all issuers in the survey group.

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3. Definitions of diversity are divergent

The new rules are clear in scope—they focus on the representation of women in senior roles. However, some issuers opted to tackle diversity on a broader scale—which the study warns may wind up diluting their efforts. Of the policies reviewed, 60% of issuers stated that if they were to tackle the gender issue, they should include other disenfranchised groups, too. The study implies that this kind of rationale could derail the objective the OSC set out to accomplish. The regulator, it adds, was right to concentrate on the underrepresentation of women and that it will “ultimately lead to progress for underrepresented groups.”

4. Diversity policies are still perceived to be a threat to meritocracy

The number one reason cited for foregoing a formal quota system was concern that it would hamper the firm’s ability to hire the best candidate based solely on their qualifications and skills.

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5. Companies don’t like the idea of setting formal quotas

Only a small subset of issuers—24 or 13%—have set measurable targets. Four of those issuers set targets that only apply to independent directors—board members who don’t own shares in the company or have any material relationship with the company. But establishing quotas won’t solve apathy toward diversity issues amongst senior managers. Quotas, the study warns, may inadvertently serve as caps for female representation.