June 21, 2021
As research around diversity in boardrooms has become increasingly important, companies will need to look at ways to approach the challenges in creating broader diversity on boards and executive officer positions.
In Season 3 Episode 2 – Going OverBoard of the TSX podcast, co-head of Torys’ Capital Markets practice Rima Ramchandani said that she’s seen increased calls for board diversity from the institutional investor community and other stakeholder groups.
“Institutional investors will be a critical driving force on diversity. Once investors start demanding diversity in the same way that they demand management to execute on other strategic imperatives because they’re being viewed as being important to the bottom line or important to the strategy of the company, that’s when I think you’ll start to see meaningful and lasting change,” Rima said.
She noted that there are plenty of resources for issuers who are focused on improving diversity. Organizations like the Canadian Board Diversity Counsel maintain a roster of board-ready candidates from backgrounds that are traditionally underrepresented.
“I’d add that you can’t underestimate the importance of other stakeholder groups. Employees, for instance, are a critical stakeholder group for most companies… they can really shape how the company responds not only to a particular crisis, but in terms of setting the priorities of the company,” she said.
In regard to mandating board diversity, she mentioned the approach the Ontario Securities Commission took six years ago when addressing the under-representation of women in corporate Canada. The model they introduced was consistent with the disclosure regime in Canada, which is “comply or explain.”
“I think disclosure rules can lead to meaningful change and can lead to meaningful development of a market standard without going that extra step of requiring or mandating a particular practice be adopted,” Rima said.
Additionally, Rima stated that issuers across industries are alert to the current change in market and boards are paying attention—most of them are well-intentioned on trying to affect change. However, not surprisingly, the rate of that change varies in sectors.
“Larger market cap companies seem to be more advanced on this – [they] have more diverse boards, have more policies in place, and are more inclined to adopt targets,” she said.
“The industries we seem to see falling behind are tech and mining… But, even in those industries which have traditionally been a little bit behind, you can see that they’re also starting to make quite a bit of progress.”
As companies navigate the current realities of their boards, there is an emphasis on board assessment, board refreshment or term limits.
“All of this comes back to the same point: heightened focus on having the right composition at the board level, having the right skillset represented around the board table, and making sure that you have that diversity of thought, experience, and skillset for the particular company. And that’s an evolving thing,” Rima said.
Diversity in the boardroom isn’t a topic that is going away, and it’s only really heightened in importance in the last five to six years. While the main focus in corporate Canada to date has been on the underrepresentation of women, it should come to no surprise that the conversation will exceed gender inequities.
“From a regulatory perspective, we’ll start to see something to come out that goes beyond the representation of women. So, companies should be looking at that in the coming months,” Rima said.