Women in senior management: The more the better
Ten years after the securities regulations came into force, which established a disclosure regime regarding the number and percentage of women sitting on a board of directors, or holding an executive position, where do we stand? Has there been any progress?
We are, respectively, the dean of the John Molson School of Business and an expert for decades on the place of women in the upper echelons of the business world, and we have combed through the tenth Review of Disclosure Regarding Women on Boards and in Executive Officer Positions, published on Oct. 30, 2024, by the Canadian Securities Administrators.
It’s worth noting that issuers (i.e. publicly traded companies) must also provide information on board renewal mechanisms and policies, as well as targets for increasing female representation. Under this Canadian law, even if public companies are not obliged to adopt diversity policies or quotas, they are required to disclose whether or not they have done so — and if they haven’t, to explain why.
This is the application of the principle, “comply or explain.”
Women are making progress… slowly but surely
This tenth report shows steady but slight improvement in the following areas:
29 per cent of director positions were held by women in 2023, compared to 27 per cent the previous year and 11 per cent in the first year of the analysis, in October 2015;
90 per cent of issuers had at least one woman on their board during 2023, compared with 89 per cent the previous year and 49 per cent in the first year;
72 per cent of issuers had at least one woman in senior management in 2023, compared with 71 per cent the previous year and 60 per cent in the first year.
However, a number of other results are cause for concern:
Weaker female representation in smaller companies: only 23 per cent of director positions in companies with a capitalization of less than $1 billion are held by women;
More than a third of organizations have not yet adopted a policy of female representation on their boards;
More than half of companies have not set targets for female board representation;
Only 42 per cent of issuers have at least three women on their boards.
Québec is doing better
An analysis of the data shows that the results for Québec public companies are more encouraging:
62 per cent of them, compared to 44 per cent of Canadian ones, have set targets for female representation on boards;
84 per cent have at least one woman on their management team, compared to 72 per cent for Canada as a whole;
58 per cent have three or more women on their boards, versus 42 per cent for all Canadian issuers.
What accounts for this greater openness? The presence of an ecosystem of government, community, academic and individual initiatives that promote female talent.
Three determining factors
The adoption in 2006 of quotas for Québec’s state-owned companies certainly helped create an environment conducive to greater female representation among Québec issuers.
This law required that boards of directors of certain Crown corporations be composed of equal numbers of men and women starting in 2011. In 2022 the law was amended to require all boards of directors of state-owned companies to respect a so-called parity zone, meaning that the proportion of women or men must be between 40 per cent and 60 per cent of the total number of directors.
Despite certain objections voiced at the time, the bill was passed, the state-owned companies were able to organize themselves to find suitable candidates, and the skills of the new female directors were not called into question. Some negative reactions even turned positive over time.
The pioneering female directors have thus been able to demonstrate the financial and extra-financial contribution of a critical mass of women, and to nurture the talent pool for these positions through their mentoring efforts.
In addition, there are many strong organizations in Québec whose mission is to promote female talent within the Québec business community, including La Gouvernance au Féminin, L’Effet A and Le Réseau des Femmes d’affaires du Québec, to name just a few.
Finally, the presence of universities and other educational institutions forms a critical mass of women who have the training required to sit on boards of directors.
The presence of at least three women on the board of directors of a decision-making body boosts an organization’s financial performance.
(Unsplash)
Three women are better than one
Are the current results enough to get our society and regulators to carry through on a commitment made a decade ago?
The best indicator to answer this question is the number of companies with more than three women on their boards. This indicator is borrowed from the theory developed by Prof. Rosabeth Moss Kanter in her book Men and Women of the Corporation.
According to Kanter’s theory, first put forward in 1977, when the ratio between a minority group and a dominant group reaches 35/65, members of the minority group have the potential to become allies, form coalitions and influence the culture of the group as a whole.
The effect, in organizational terms, is similar to the impact of “critical mass” as described in nuclear physics. This implies the presence of a sufficient quantity of an element to cause an “uncontrollable chain reaction,” where change occurs dramatically, far beyond what could be predicted.
A number of studies have verified this theory, notably by professors Sara de Masi, Agnieszka Slomka-Golebiowska and Andrea Paci. Based on a sample of companies listed on the Spanish, Italian and French stock exchanges, the results suggest that boards of directors exercise more rigorous corporate oversight when the percentage of women directors reaches the one-third threshold.
More successful businesses
And what can we say about the impact of an increased presence of women on the financial performance of companies?
As far back as 2007, a study by the American consulting firm Catalyst concluded that companies with a high proportion of women in their decision-making structure have 42 per cent higher profits. Their invested capital yields a 66 per cent higher return. MSCI’s study “The Tipping Point: Women on Boards and Financial Performance,” had similar conclusions.
Another study led by Élisabeth Lamure and Jacques Le Nay, “How to value responsible and committed companies,” shows that companies with more than three women on their boards saw a median 10 per cent increase in return on their shareholders’ equity (this refers to a company’s resources that belong to its shareholders, as opposed to debts to suppliers or banks, for example) and a 37 per cent increase in earnings per share between 2011 and 2016.
Companies with no women on their boards in 2011, on the other hand, saw return on equity and earnings per share fall by one per cent and eight per cent, respectively, over the same period. The same study also shows that while the appointment of a single woman to a board of directors has a positive impact, it is only when at least three women are present that the benefits become apparent and reverberate throughout the company.
A wait-and-see attitude is costly
A wait-and-see attitude is costly not only in terms of untapped female talent, but also in terms of the quality of the governance of our organizations. The time has undoubtedly come to legislate quotas if we are to collectively aim for a more equitable society where the talents of all are put to optimum use.
The results show that the presence of at least three women on the board of directors of a decision-making body boosts an organization’s financial performance. The trends are positive and cast a favourable light on the goal of valuing gender diversity, and diversity of perspectives, as a way to make our companies sustainable. Läs mer…