In 2013, a report from TD highlighted the lack of women representation on the boards of publicly traded Canadian companies. Six years later, TD has released a new report that tracks the progress made since its initial findings. Kim Parlee talks with Beata Caranci, Chief Economist at TD Bank.
- Hello, and welcome to the show. It is great to have you with us. In 2013, TD Bank wrote a report called Get On Board Corporate Canada that called out the lack of progress on women on the boards of publicly traded Canadian companies and recommended a gender disclosure policy called Comply or Explain. Here to explain what's happened since then is Beata Caranci.
She's Chief Economist at TD Bank out with a brand new report. Incidentally, Beata also penned the report that came out six years ago. Nice to have you here. Not trying to age you.
- You just did.
KIM PARLEE: That wasn't the intent. Let's talk a bit about the report. As I mentioned, you came out six years ago. You amongst others as well recommended the Comply or Explain. Give us a little background on why you did this, and also what Comply and Explain is.
- So when we studied the original data six years ago, we were not seeing any evidence that the gender representation on boards had been improving. And in fact, it had been pretty static for several years. So one of the recommendations we put forward is this Comply or Explain policy. It was subsequently adopted by the Ontario Securities Commission in 2014, which came into effect in 2015.
So it hasn't had a long runway. But effectively, what it's saying is we require firms listed on the TSX to disclose whether they have a gender diversity policy, how they think about diversity in the nomination process to disclose figures. So what is your representation of women on boards, both in levels and in shares? That's the comply portion.
If you choose not to do that, then it's the explained portion. So explain to your shareholders why you're choosing not to do it. And it basically arms the shareholders with the tools and the information they need to go and challenge those board nomination processes.
KIM PARLEE: Now, in the process, I mean, different countries have chosen to do different things. You have-- I wouldn't say it's a spectrum because Comply and Explain is on that range. But the other is quotas. And you have countries like Belgium, France, Germany, Iceland, India, Israel, Italy, Norway, and Spain. They've done quotas. Why do you think Comply and Explain would be better than quota?
BEATA CARANCI: Well, we went with the recommendation Comply and Explain because this is where you're harnessing market forces as opposed to trying to force an outcome through a quota, which is more "let's hit a number." What's the quota? 30%, 40%? It's a very normative decision.
And what we found is that companies, you put a number out there, they'll hit that number. But have you been effective in changing culture, biases, practices?
And so by having a comply or explain where you're giving the shareholders the information they need to go and challenge boards, this allows that market driven force to ultimately get to the root of the issues. And so we also don't see that whether you have a quota or a comply or explain policy, that the numbers differ that much, that the comply or explain is as effective as what we're seeing on the quota, but you don't have all the unintended effects that come with the quotas. One of them is the stigmatization of women who are put on boards or get perceived as being put on boards because you're filling a quota rather than merit.
KIM PARLEE: Let's take a look at some of the data that you have in your study. We have a chart here. We've condensed it a little bit. People can get it online if they want to see this when it comes out.
But we have here-- look at 2009. We skipped all the years in between, and we went straight to 2018. What-- tell me what we're looking at here. I mean, we can see Canada and how it's ranked. But Canada, I think, had 12.4% in 2009, and 27% publicly traded companies in 2018.
BEATA CARANCI: Yeah, so what's interesting about this chart is Canada ranked higher with lower numbers in 2009, and now ranks lower with higher numbers.
KIM PARLEE: Rising tide, right?
BEATA CARANCI: Yes.
KIM PARLEE: Rising tide, all boats.
BEATA CARANCI: That's exactly it. And so what we're looking at is had we not put in comply or explain policy when we did, we would probably not be showing on this chart. We would be well off the top 15 list. And in fact, if you look at where is the US, the US actually isn't showing on the 2018 numbers on the top 15 list because they have the weakest form of policy when it comes to gender diversity.
And so they are increasing over time but much slower than other countries who have put in either a soft policy, which we call a comply or explain, or hard quotas. So it has been material to moving the numbers. But to your point, it is a rising tide.
We are in a catch up mode. We do have-- Canada has one of the youngest policies. So if you look at Australia or UK, who we've modeled the policy recommendation after, they're about three years ahead of us. So we're moving in the right direction. We're just in catch up mode.
KIM PARLEE: Some of the other details in terms of Canadian progress. You've seen an increase in the share of women on boards across all industries, all firm sizes, and a decline in the share of boards with zero women.
BEATA CARANCI: Huge decline on that front. So that was one of the statistics that kind of stood out when we did the original report in 2013 that roughly 40% of firms on the TSX had zero women on their boards. And it seemed to be like an anomaly relative to the executive ranks, relative to women's representation in education, in the labor market. Why did 40% of firms not have any women?
This policy came into effect. And we went from 40% to 7.5% of boards not having any women. Very rapid decline. So it's very impressive in terms of when we're looking for metrics that the policy is having an effective outcome. This is clearly one of them.
KIM PARLEE: Let me ask you one thing that-- I mean, obviously you are a data person. And so part of what you do is you crunch data. And sometimes the numbers can mask a few things.
And I know one thing that is positive. We're seeing more women on boards. In terms of the-- is it the same women? Is it the same small number of women that are being asked to be on these boards? And is that-- it's moving in the right direction, but still is that an issue?
BEATA CARANCI: So it's actually not. So this is a concept that is called over boarding. For women it's called golden skirt. This is where you'll have a woman represented on four or more boards, which is the threshold where you have over boarding come in.
And the Rotman School of Business did a study at this, and they found there was only six women who were on boards, four or more. And for men, 10 men. So we're not seeing a significantly different outcome.
Those six women represent just 5% of total women on board. So it's a very low share. I think this notion of that there's this very handful of women on all these boards probably came about when I remember when I was doing the original report. Norway had put in a 40% quota in over a fairly short time period.
And so what had happened is there were quite a few instances where women-- the same women were on multiple boards and even family members and things like this. And this gets to the point of the quota being counterproductive to what you're ultimately trying to do in the perceptions of the market. And I think that narrative, many years later-- it's a decade later-- still sticks in terms of how we perceive policies impacting women.
KIM PARLEE: It's funny. I actually interviewed the minister of labor from Norway when that happened. And that-- I do remember that conversation coming up all those years ago. What's next for this? What would you like to see?
BEATA CARANCI: Ongoing progress, really. I think the numbers are speaking for themselves. We are seeing the Dow move quite a bit here. But we want to continue to see progress.
So what's interesting when we say this policy is designed to arm shareholders with the information that they need, we're actually seeing all sorts of CPP, Terra, Teachers, BlackRock, others, adopting policies where they're challenging firms now that they have the numbers and they have the policies in hand, challenging their nomination processes, their search processes to make sure that they are really casting the net wide to get the best candidates.
Those policies-- a lot of them have been coming into place in 2018 and then in this year. So now we're really going to see-- first, we had the policy effect independent. And now we'll see the shareholder effect. So I would like to help monitor again for another three or four years to see how much more progress we can make. Because frankly, every metric has improved in a very short period, three to four years.
And you think of these firms, they're not rotating board members with a high ratio, right? That would cause some pain in terms of firm operations. So the speed of adjustment is faster than I was expecting.
KIM PARLEE: We'll have to see if it continues. It's great data. Thanks so much, Beata.
BEATA CARANCI: My pleasure.