Canadian HR Reporter

SEPTEMBER 8, 2014 CANADIAN HR REPORTER & STRATEGIC CAPABILITY NETWORK e perfect storm OSC rule presents shining opportunity for boards amidst growing shareholder activism, global pressure for gender diversity By LiZ BeRnieR If you were to look around your company's boardroom, you would likely fi nd a table full of look-alikes: educated white males — all with similar backgrounds, social circles and golf club memberships. chances are good there is nary a woman to be found. More than 40 per cent of the com- panies listed on the Toronto Stock Exchange do not have a single woman on either the board of di- rectors or on the senior manage- ment team, according to a recent Ontario Securities Commission (OSC) analysis. ere are even companies in the retail space that do not have a single woman on their board — yet they're selling primarily to women, said Maureen Jensen, executive director and chief ad- ministrative offi cer at the OSC in Toronto. " ese are real problems," she said. "We looked around and we saw that 50 per cent of the talent in Canada was not being utilized and not being harnessed… it was just such a wasted opportunity." at's a central reason why the OSC published a rule amendment regarding board diversity in Octo- ber of last year, which took eff ect Dec. 31, 2014. "We saw a lot of boards that were same-old, same-old — boards that had made a lot of mistakes… Financial business in Canada is a small town and we saw a lot of the same people on multiple boards, so we saw a lot of over-boarding," said Jensen. "We wanted to have a graceful solution for Canada and we're not comfortable with quotas." e OSC rule will require any company listed on the Toronto Stock Exchange to provide dis- closure regarding director term limits, policies regarding the rep- resentation of women on their boards, their consideration of how they factor in female representa- tion, any targets that they have around it, and the actual number of women on the board and wom- en in executive offi cer positions, said Jensen. Mounting pressure systems at rule amendment comes in the midst of a perfect storm for gender diversity on boards, said Beverly Behan, New York-based president of Board Advisor. It's important to understand that storm — the context and en- vironment of the boardroom — in order to fully understand the importance of the OSC's gender diversity rule, she said. Boards of directors — not the C-suite — are really the ones set- ting the tone at the very top of an organization, said Behan. "We hear a lot about tone at the top and how important that is to setting corporate culture. But the real tone at the top starts with the board of directors," she said. "And you have to think about what kind of tone that you want the board to set. How do you want your exec- utives to feel when they come in and work with the board? I would say number one, inspired, chal- lenged — and in a good way." Boards add the most value when they stretch executives' thinking, give them new insights and off er diff erent perspectives they didn't have before. "I have CFOs and CEOs who say to me, 'I get so much value from the board because I know when I go to Bay Street and Wall Street, and stand up in front of the analysts, there is nothing that they're going to throw at me that I didn't hear at the board meetings.' at's tremendous value," she said. And the crucial factor to creat- ing a great board — a board with that "wow" factor — is the compo- sition, said Behan. "Board composition is probably the single most important factor in board eff ectiveness," she said. "If you don't have the right board composition, you're never going to have a great board." In essence, the real job of the board nominating committee is to put the best possible governance team around the table — but a number of things are getting in the way, said Behan. One obstacle is that once some- one is appointed to the board, he will probably be re-nominated pretty routinely until he retires — barring some kind of problem or confl ict of interest. "The other thing is a lot of boards have relied on their own Rolodexes — people they know, people they hang out with at the Mississauga golf club — in order to source board candidates, as opposed to the best possible gov- ernance team that they can fi nd," she said. There have long been issues with director recruitment and, on top of that, shareholder activ- ists are becoming very interested in board composition, said Behan. Shareholder activism is a trend growing around the world, said Jensen. "In Canada, we have a very shareholder-friendly regime, much more so than in the U.S., and we can see that if we don't have strong, active, smart, en- gaged and thoughtful boards, we will have a hollowing-out of cor- porate Canada," she said. ere's also mounting global pressure towards promoting women on boards that began in Norway in 2003, said Behan. Nor- way passed a law requiring Nor- wegian boards to be comprised of 40 per cent women. Companies had fi ve years to comply or were delisted from the Norwegian stock exchange. "So we've seen this tsunami effect of many other countries adopting these quotas. (But) quotas are not popular in North America," said Behan. "What the OSC put together was a graceful way for Canadian boards to ad- dress this tsunami." Hope on the horizon Change may be on the way for Ca- nadian boards, as the OSC begins to collect disclosures from TSX- listed companies, said Jensen. "We are starting now to get this disclosure in. Our job now will be to compile what we get and look at it for compliance. We will talk to companies who are not in compli- ance, but we will also be publish- ing reports on what we see," she said, adding the Ontario govern- ment will likely be taking a close look at the numbers as well. ere are two diff erent ways Canadian boards might respond to the new rule, said Behan. "Number one is, 'Hey, let's try some boilerplate,'" she said. "(But) I don't think boilerplate is going to get you that far… there's a second option and it's to actu- ally capitalize on the opportunity that the OSC policy has given boards." e new rule is actually a won- derful opportunity to go and en- hance the calibre of the board, she said. "We are going to see some re- cruiting for tokenism — 'Give me a woman, any woman.' at is going to be a nightmare because boards are bad at performance management. So that is the worst thing that could happen. But I'm optimistic that some of the best things will happen, which is to really bring some 'wow-calibre' directors onto Canadian boards," said Behan. e OSC is itself an example of what can happen when boards embrace diversity, said Jensen. "We didn't just do this as an aca- demic exercise. We have a board that is 38 per cent women, we have a senior management team that is just over 60 per cent wom- en. And what we found was, with a concerted eff ort to try to get gen- der diversity in our senior levels, the conversation has changed," she said. "We have fantastic board mem- bers of both genders, but the board as a whole works very, very diff erently. It is a collegial board, but it's fi lled with people who are bringing incredible background experience. "But just how they work togeth- er as a team and how they ask real- ly tough questions, it really shows that if you get the gender balance right and you get true diversity — not just of gender but of thought — at the board level, it can really, really change the culture." More than 40 per cent of the companies listed on the Toronto Stock Exchange did not have a single woman on either the board of directors or on the senior management team, according to a recent analysis. Credit: Mark Blinch (Reuters)

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