Canadian Lawyer InHouse

23 canadianlawyermag.com/inhouse April 2015 N ew rules now require listed companies in sev- en provinces and two territories to report an- nually on their approach to adding more women to senior-management positions and their boards of directors. The new rules don't set quotas, but rather allow companies to make voluntary changes, so there's concern gender dispar- ity on boards won't disappear as quickly as some would like. The securities regulatory authorities in Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Québec, and Saskatchewan have adopted the rules, which went into effect on Dec. 31, 2014, geared toward increasing transparency for investors. The new rules require companies to report on the number of women on their board and in executive officer positions; how the board or nominating committee considers the representation of women dur- ing the selection process; and how the com- pany considers representation of women in filling executive officer positions; as well as company targets regarding the representa- tion of women on the board. What we've seen for decades, to varying degrees, is that boards have been principally comprised of white men in their 60s, says Jennifer Longhurst, a partner with Davies Ward Phillips & Vineberg LLP. "As a result of a wide variety of factors, we see businesses now grappling with a broad range of issues partly influenced by the increased focus on corporate gov- ernance and risk management," she says. "So it raises the question as to whether a relatively homogenous group of individuals with similar backgrounds and experiences can bring the broadest range of solutions to the table." In the Davies Governance Insights 2014 report, the firm found there has been a modest increase in female representation, as well as a positive trend in overall leader- ship by women on boards — but gender disparity persists and the rate of change continues to be relatively slow. The rationale that underlies the new rules of disclosure to promote diversity is the view that boards are more effective at decision-making when there's a greater diversity of perspective, says Longhurst, adding that research suggests boards with two or more women tends to bring a ben- eficial change in culture and leadership. "You can see positive impacts on compa- ny performance and stock price," she says. "There appear to be some real tangible benefits to increasing diversity." There are no quotas, nor are there prescriptions to foster diversity or board renewal. Rather, the new rules promote a model that grants companies flexibility in how they want to approach the issue. Many times the qualifications for direc- tors are fuzzy or nebulous. "What needs to happen for boards to diversify is you need to enlarge the pool to people you don't know," says Richard Leblanc, an associate professor in law, governance, and ethics at York University. He is also a member of the Academic Advisory Board with the Canadian Coalition for Good Governance. "There's a natural tendency to bring on people you have a prior relationship with and that limits your pool, because for the most part you're excluding a large part of the population," he says. When board members know each other, the tough questions don't get asked. "It promotes group think," says Leblanc. "If [a new board member] is not previous- ly known, the performance of the board increases." Directors also tend to recruit people who serve on multiple boards, so they're "over-boarded" and less effective. "If you're an executive and on more than two boards, it's actually a red flag, it's not a badge of honour," says Leblanc. But entrenchment leads to pushback from those who view the new rules as threatening. And they'll put forward all sorts of myths and misinformation to main- tain the status quo. "It's like a club," says Leblanc. "That's what boards are up against — it's difficult to peer review your colleagues. That's why wiggling happens and entrenchment hap- pens. It's not comfortable to ask someone to step down." If you look at the leaders of corporate Canada, they've typically been men, "so I'm not sure it's a myth to say the pipeline hasn't been readily available," says Longhurst. In certain industries, for whatever reason — whether because of biases or more legitimate reasons such as few women in the workforce — it's not as easy to identify appropriate candidates. "What we've seen change, though, is some of the traditional criteria for select- ing board members has significantly broadened," she says. "You don't want a board comprised entirely of CEOs, espe- cially because of the increased demand for a board's time." And that opens the door to a more diverse candidate pool. Wendy Cukier, vice president of research and innovation at Ted Rogers School of Management's Diversity Institute at Ryerson University, says cor- porate boards have much lower levels of representation than those in the educa- tion and health-care sectors. "What's more interesting to me is that there are huge disparities within sectors," she says. In its DiversityLeads 2014 report, the Diversity Institute found that some of the largest private-sector companies have at least 40 per cent women on their boards, while on the other hand almost 40 per cent had no women whatsoever on their boards. gender

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