Canadian pension funds offer proposals on board diversity

The Ontario Teachers' Pension Plan and the British Columbia Investment Management Corp. have made specific proposals to the Ontario Securities Commission on increasing gender diversity among members of corporate boards.

The C$125.9 billion (US$121.7 billion) OTPP, Toronto, recommends there generally be at least three female directors on the board of all publicly traded companies, while the BCIMC wants 30% of each board to be female. The BCIMC, based in Victoria, oversees $102.8 billion in provincial public pension and other assets.

Both organizations recommended penalties for companies that fail to comply, but did not specify what they should be.

The recommendations were made to the Ontario Securities Commission, which sought input on increasing gender diversity of the boards of publicly traded companies based in the province. (In Canada, each province has its own securities and governance laws.) The OSC call was included in the province's fiscal 2014 budget, which was released May 14.

“Ontario was the first province to do this, though the issue has come up from time to time over the past several years,” said Wayne Kozun, senior vice president and head of fixed income and alternatives at OTPP. Mr. Kozun previously was senior vice president of public equities at Ontario Teachers. He said the fund's three-women recommendation would be contingent on the size of the board in question; those with larger membership would be expected to have 30% women.

Ontario Teachers' proposal would apply to all non-venture issuers that trade on the Toronto Stock Exchange. “The selection of a minimum of three women on a board is rooted in the belief that board diversity yields more effective boards and better results for shareholders, and not based on meeting an arbitrary target simply for the sake of meeting that number,” according to the proposal. “The threshold of three women directors is a means to achieve an end (more diverse boards) and our review of the research has led us to conclude that without such a push it is not evident that sufficient progress in improving diversity would be made.”

The BCIMC, in its proposal, also recommended “an aggressive but achievable” three-year time limit to achieve its recommended 30% target. “Venture issuers should not be exempt though they may need more time to comply. A time limit of five years would be reasonable for venture issuers.”

It also recommended companies have a diversity policy for directors and senior management, including targets, and apply “comply-or-explain” disclosure on progress toward implementation.

“We've been promoting gender diversity on boards we have control over for some time,” said Doug Pearce, CEO and chief investment officer at BCIMC. “It's worked out well for us. In my mind, it's not hard to populate boards with very capable women directors.”

Mr. Pearce said that with companies in which BCIMC has majority or full ownership, “all those boards have a higher number of females.” As an example, he cited Parkbridge Lifestyle Communities Inc., whose seven-member board has four female directors.

Ontario Teachers' Mr. Kozun said the pension fund does not now have a requirement for gender diversity on boards, but in future proxy voting, “we will increasingly look at (gender diversity on corporate boards).” He said issues the plan must take into account include jurisdictional and cultural ones, citing as an example Japan, where there are few women on corporate boards.

While BCIMC called for the “comply-or-explain” model to monitor compliance, Ontario Teachers is looking for more of a legal requirement.

“The TSX has instituted a comply-or-explain model for companies adopting majority voting, yet since the policy's adoption in December 2012 a number of issuers have failed to adopt a majority voting policy for director elections, citing a lack of a legal requirement to do so,” according to Ontario Teachers' recommendation.

Mr. Pearce said it's too soon in the process to specify what the penalties for non-compliance should be. “We're not looking at penalties at this time,” he said, calling the OSC request for recommendations “a good first step.”

Both Messrs. Kozun and Pearce said the securities commissions of three other provinces — Quebec, British Columbia and Alberta — are expected to look at gender diversity, though so far only Ontario has put out a call for recommendations. “The Ontario government is behind the move by the OSC, and we applaud them,” Mr. Pearce said, adding he expects it's also on the “radar screen” of the British Columbia Securities Commission.

The Ontario Securities Commission expects to make recommendations on gender diversity on boards and senior management to the provincial government this year, said Carolyn Shaw-Rimmington, spokeswoman. If the OSC decides to proceed with disclosure requirements, it will publish proposed changes to its corporate governance disclosure rule for a 90-day public comment period. n