(October 9, 2013) — Ontario Teachers’ Pension Plan has proposed that all TSX-listed companies appoint a minimum of three women directors to boards.
In response to a paper filed by the Ontario Securities Commission (OSC) regarding women in senior management positions in Canadian companies, the $125 billion fund said companies should be required to ensure their boards’ gender diversity or be sanctioned for non-compliance.
“Generally, Canadian boards have been slow to increase diversity,” Wayne Kozun, Ontario Teachers’ senior vice president of public equities, said in the letter. “The lack of improvement in the overall increase in the number of women on boards observed over the past number of years at Canadian issuers indicates to us that it is an appropriate time to address the issue of gender diversity.”
In the last decade, only 10% to 13% of Canadian boards had women directors and 40% to 50% had no female members.
In an effort to remedy the lack of diversity, the OSC proposed a “comply-or-explain” approach. However, Ontario Teachers’ argued for a stronger position to achieve results.
Why a minimum of three women? According to a 2006 study, three is a good number to enhance governance on corporate boards.
Having just one woman serve on the board could be taken as tokenism, the study found. Two would be better, but the women would still find their influence on the board limited due to their gender.
“You can definitely sense a diversity of thought, perspective, and experience with three people,” Nancy Sims, president and CEO of the Robert Toigo Foundation, told aiCIO. The organization works to promote women and minorities in finance. “The number becomes a benchmark to grow from as appropriate opportunities arise.”
The pension fund maintains a good level of diversity on their board, Kozun said. Since its inception in 1991, Ontario Teachers’ has almost always had three to four female directors. Today, four of nine directors are women and Eileen Mercier has served as Chair for the past six years.
In addition to the minimum quota, Kozun said OSC should incorporate sanctions for non-compliance: a threat of delisting companies from TSX. However, the proposal will also include a “phase-in period” up to 2020 for companies to comfortably transition with few disruptions to their governance.
The plan also encourages company boards to enhance their transparency and diligence during the director recruitment process.
Among women, Sims said, “The talent is there. Taking on opportunities to diversify is a deliberate and conscious effort. It takes true commitment to achieve diversity within corporate governance.”
Ontario Teachers’ full letter can be found here.