Women in corporate Canada: Boards continue to add women, but progress at the executive level is modest

Canada’s securities regulators have published their fifth study reporting on key trends relating to female representation on public company boards and in executive officer positions. The “Report on Fifth Staff Review of Disclosure Regarding Women on Boards and in Executive Officer Positions” tracks metrics between 2015 and 2019 for 641 TSX-listed companies whose fiscal years ended between December 31, 2018 and March 31, 2019.

As Canada’s largest banks have fiscal year ends of October 31, they were excluded from the study—as a result, the data is somewhat skewed as the banks have above-average numbers of women in leadership positions. For instance, the boards of directors of the six largest banks are, on average, 38% female, while the boards of directors of the companies in the study are, on average, 17% female.

Female representation on boards

The good news

Some measures reported in the study indicate that real progress has been made towards increasing female representation on boards since 2015 when the disclosure rules became effective.

• 73% of issuers—up from 49% in 2015—have at least one woman on their boards.
  • The manufacturing industry leads the way with 93% of issuers with one or more women on the board, up from 60% in 2015.
  • The retail and utilities industries are close behind with 86% and 85% of issuers, respectively, with at least one woman on the board.
  • While the mining, oil and gas and technology sectors continue to lag, issuers in these areas have made significant strides over the last five years. The percentage of companies with at least one woman on their boards has increased from 35% to 62% in the mining industry, from 40% to 70% in the oil and gas industry, and from 39% to 73% in the technology industry.
• Targets at the board level are gaining momentum. The percentage of issuers who have adopted targets for the representation of women on their boards increased to 22% in 2019—up from 16% in 2018 and more than triple the 2015 figure of 7%. Issuers with targets have more women on the board—an average of 24% female directors, while those without targets have an average of 15% female directors.
• 50% of issuers have adopted a policy relating to the representation of women on their boards—a significant increase from the 2015 figure of 15%. Issuers with diversity policies have more women on the board—an average of 21% female directors, while those without diversity policies have an average of 13% female directors.

The not-so-good news

Other measures reported in the study demonstrate that there is still much room for improvement.

• 27% of issuers continue to have no women on their boards. In the 2020 proxy season, these issuers will be at risk of ISS or Glass Lewis recommending a withhold vote against the chair of the nominating committee, especially if the issuer has not adopted a board gender diversity policy.
• Women occupy only 17% of all board seats—up from 11% in 2015. However, consistent with prior years, the overall data is weakened due to the board composition of smaller market cap issuers. 27% of all board seats are occupied by women at issuers with over $10 billion market capitalization as compared to 13% at issuers with less than $1 billion market capitalization.  
• Term limits for directors have not been widely adopted, which contributes to lower board turnover. And of the available board vacancies in 2019, only 33% were filled by women. The resulting modest pace of change means that it will likely take many years to achieve one-third female representation on boards—the target often recommended by governance and diversity experts.
• Only 15% of issuers have three or more women on their boards. Governance advocates have cited evidence that a minimum of three women on the board is necessary to achieve a board with a sufficient diversity of members that can exert influence in the boardroom.
• Only 5% of boards have a female chair. This statistic is a barometer for the overall number of women on boards. A 2017 Deloitte study, “Women in the Boardroom: A Global Perspective” found that globally, boards of directors with female chairs (and companies with female CEOs) tend to have significantly higher numbers of female directors.

Female representation in executive officer positions

The measures reported in the study relating to female representation in executive officer positions illustrate that only small gains have been made since 2015.

• 36% of issuers have no female executive officers—a modest improvement from 2015 when 40% had no female executive officers.
• Only 4% of issuers have a female CEO and 15% have a female CFO—flat since this data began to be collected in 2018.
• Targets for female executive officers remain rare—only 3% of issuers have adopted targets for the representation of women in executive officer positions. On the theory that “what gets measured gets done” and by learning from the experience at the board level where issuers who have adopted targets have more women on the board, we may start to see an increased adoption of targets at the executive level.
• The dearth of women in the C-suite may have an adverse impact on the developmental pipeline of women who are considered board-ready, as board members are often expected to have executive experience.
• Overall, the executive officer data demonstrates that there is much more hard work to be done by issuers who are focused on creating a more diverse and balanced workplace, and who view diversity as a key strategic and competitive advantage.

Board renewal

Board renewal mechanisms include term limits (in the form of age limits, tenure limits or both) and other mechanisms such as directors’ performance evaluations. The metrics relating to board renewal in the study show that:

• overall, term limits have not been widely adopted with only 21% of issuers having adopted term limits in 2019, up modestly from 19% in 2015;
• of those issuers that have adopted term limits, fewer are imposing age limits as their only renewal mechanism and more have adopted a combination of both age and tenure limits; and
• more issuers are disclosing that they have no board renewal mechanisms in place—although this may be due to increased compliance with the rules compared to when they were first adopted.

With only ¼ of the 21% of issuers that adopted term limits opting for tenure limits, and with the average limit of 13 years, only a small number of board seats will become vacant each year. In 2019, 525 board vacancies were filled by the 641 issuers in the study, representing an average of less than one new board seat per issuer per year.

Next steps

The securities regulators indicated that they will continue to monitor progress towards greater female representation on boards and in executive officer positions. Neither the study nor the 3-year business plan published by securities regulators earlier this year indicates whether the regulators are currently considering imposing more onerous disclosure or other requirements, or adopting best practice guidelines for female representation. Therefore, we do not anticipate further regulatory action in this area before the 2020 reporting season.