Do we need a hammer to convince Canadian companies to appoint more women directors?
The Ontario Teachers' Pension Plan certainly thinks so.
This week, Teachers made a splash with a proposal to the Ontario Securities Commission that all publicly traded companies be required to have at least three female directors on their boards. And that those companies that fail to comply by 2020 be delisted from the Toronto Stock Exchange.
The debate over board diversity is hardly new; many OECD countries are struggling to find ways of putting more women and minorities on boards. Research indicates that in general, a more diverse board makes better decisions, which helps make for better companies.
But lost in the debate is a qualitative analysis of exactly why boards have been so reluctant to open up their doors to diversity.
In the United Kingdom, a voluntary law to increase gender diversity did see some early success. However, after a period where there seemed to be some momentum, the proportion of women on UK boards has mostly plateaued. Would a mandatory law, as the UK is studying and Teachers is proposing, get things moving in the right direction?
Quotas come with risks. Forcing a board to appoint women does not guarantee that the best and most qualified women would find their ways onto boards of directors. Also, quotas do not ensure female directors would be respected by their male peers.
In a perfect world, individual companies would voluntarily embrace diversity at the bequest of shareholders. In most companies, shareholder activists often have the power to bring about changes like this. And because it comes from shareholders, it's more likely to be accepted as policy, and not as a regulatory burden.
Teachers is proposing a very long phase in for mandatory diversity. Perhaps with that much lead time, boards could start recruiting the smartest, most capable women to serve as directors. They could, in essence, build a pipeline to not only increase diversity, but improve the overall performance of boards.
Teachers' certainly has everyone talking about an issue that indeed requires more thoughtful reflection, and action.