Canadian investors add to pressure on board diversity

Sep 19, 2017
Sixteen firms issue call to action

A group of large Canadian institutional investors has joined the growing chorus of shareholders calling for greater diversity on company boards – pressure that is affecting votes and some governance teams’ approach to engagement.

Sixteen firms with a combined C$2.1 trillion ($1.7 trillion) in assets under management recently issued a statement calling for 30 percent representation of women on the boards and executive management teams of S&P/TSX composite index companies by 2022.

A Canadian Securities Administrators review, the results of which were issued last September, finds progress is being made very slowly in terms of gender diversity on boards. Overall, the percentage of board seats occupied by women increased to 12 percent last year from 11 percent the year before.

The signatories of the recent statement, which are members of the Canadian 30% Club Investor Group, describe gender diversity as a ‘critical component of good corporate governance.’ They write: ‘It is well established that diverse boards and executive management teams are more likely to achieve better outcomes for investors by introducing a broader spectrum of perspectives, skills and experience.’

The firms commit to exercising their ownership rights to encourage increased representation of women on corporate boards and in executive management positions in Canada. They also call for a series of ‘prompt’ actions to be taken by companies to help move the needle toward the 30 percent goal:

  • Publicly disclosing their diversity policies and processes used to identify female board nominees and female candidates for executive management positions
  • Adopting a ‘professional and structured approach’ to director nominations that ensures directors are appointed based on merit, with due regard for the benefits of gender diversity
  • Using existing resources and tools to ensure effective consideration of gender diversity and taking steps to mitigate cognitive bias, where possible
  • Committing to rigorous assessments of director and executive performance, as well as regular board refreshment.

In addition, the firms encourage other investors and business leaders to support these efforts by:

  • Engaging in conversations with board chairs and nomination committees to encourage the actions they ask companies to undertake
  • Monitoring companies’ efforts and performance on this issue
  • Encouraging best practices by highlighting examples of companies that are leading the way in this area
  • Entering into dialogue with investee companies where there is evidence the nomination process has failed to appropriately consider gender diversity
  • Assessing the use of their voting rights when nomination committees or boards fall short of expectations.

Signatories to the statement include BMO Global Asset Management, CIBC Asset Management, Ontario Teachers’ Pension Plan and RBC Global Asset Management.

Diversity and other ESG-focused issues are gaining increasing shareholder attention and support. In the US, for example, State Street has this year run a high-profile campaign featuring the so-called Fearless Girl statue near Wall Street.

Blake Cassels & Graydon partner Ross McKee told delegates at the annual Governance Professionals of Canada conference last month that the statue has had more of an impact than other measures, adding that shareholder pressure has an effect on companies (, 8/31).

Fellow panelist Pierre Tellis, senior counsel in TMX Group’s general counsel’s office and chief compliance officer for TSX Trust Company, noted that there has been significant progress in boosting board diversity in European countries where quotas have been enforced. He suggested there might be a change in views on doing the same in Canada if female participation rates stall at around 15 percent.

In a recent letter to public companies, Vanguard chair and CEO Bill McNabb notes his firm’s ‘evolving position’ on climate risk and gender diversity (, 9/13). ‘There is compelling evidence that boards with a critical mass of women have outperformed those that are less diverse,’ he writes. ‘Diverse boards also more effectively demonstrate governance best practices that we believe lead to long-term shareholder value. Our stance on this issue is therefore an economic imperative, not an ideological choice.’

McNabb calls on companies to be willing to discuss how they are moving toward a more gender-diverse board, both in public disclosures and in engagement with shareholders. Within the last year, the firm voted in favor of one shareholder resolution asking a Canadian company to adopt and publish a policy governing gender diversity on its board.

Professionals say that, faced with this growing pressure, governance teams have started adapting their approach to shareholder engagement by taking steps such as having calls or meetings outside the main proxy season, expanding director involvement in the process, or improving governance and investor relations team co-ordination.`

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