Why Boards Need More Women

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Why Boards Need More Women

Presented by: Colleen Cebuliak, Partner, Fraser Milner Casgrain LLP

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Topics To Be Covered

• Percentage of women on boards

• Are more diverse boards better?

• What initiatives have been taken thus far?

• What can we do as individual women?

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Statistics for Women on BoardsNational and International

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International Statistics

Source: McKinsey & Company, Women Matter 2010 (October 2010)

Median = 12%

• Numbers vary with Norway having the highest number of women represented on boards at 32% vs. the lowest representation being in India at 5%.

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Canadian Statistics• Canadian statistics demonstrate that women are highly underrepresented on boards in

Canada. • Of the 17% Financial Post 500 (FP 500) board members serving as Chairs in 2010, only 10%

are women.

Women represented on boards of FP 500

2007, 13%

2009, 14%

2010, 15%

10% 12% 14% 16% 18% 20%

Canada

Source: Canadian Board Diversity Council, 2010 Annual Report Card2009 Catalyst Census: Financial Post 500

Women as Chair of their board of the FP 500

Female, 10%

Male, 90%

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Statistics

• Reason for being on boards: A survey conducted in 2010 asked men and women corporate directors a number of questions related to theirinvolvement with a board. Some results demonstrate one particular difference in why men and women choose to serve on a board. Women were more interested in enhancing their reputation and gaining prestige than men:

–31% of women said they wanted to serve on a board for the “prestige conferred by sitting on this particular board” vs. only 18% of men.

–81% of women vs. 68% of men said they felt that serving has enhanced their professional reputation.

Source: Heidrick & Struggles, 2010 Board of Directors Survey

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Are more diverse boards better?

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YES for the following reasons:

1. Strategic Advantages

2. Better Financial Performance

3. Better Corporate Governance

4. Better Educated Board Members

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Strategic Advantage

“Companies and governments should think about diversity not only in the context of human resources, affirmative action and fairness, but also as

a way to attain a strategic advantage.”

Scott Page (Professor, University of Michigan)

Ernst & Young Report, GroundBreakers, 2008

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Are more diverse boards better?Strategic Advantage

• Why Diversity? “You want people who categorize things in diverse ways.”

– The Texas Wall Street Women’s Association asserts that companies are “stronger, better positioned to tackle external and internal challenges and more focused on the bottom line when their boards embrace gender diversity.”

– “Research demonstrates that groups with greater diversity tend to perform better than homogeneous ones, even if the members of the homogeneous groups are more capable.” ‐ 2008 Ernst & Young Report

• This report set out a complex mathematical formula which broken down in simple form is: Crowd Error = Average Error – Diversity. [Which means, “the collective ability of any crowd is equal to the average ability of its members, plus the diversity of the group.”]

• Market Advantages: Although women on boards do not necessarily get involved in the day‐to‐day activities of the business – “the presence of a woman on a board makes it more likely, than not, that frequently overlooked female market issues will be identified and addressed.”

Source: Ernst & Young Report, GroundBreakers, 2008Judy Rosener, Women on corporate boards make good business sense, 2009

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Better Financial Performance • Fortune 500 companies with more women on their board of directors turned in

better financial performances than those with fewer women board directors (WBD).

Return on equity by women's represenation on the board

9.1%

13.9%

Bottom Quartile WBD Top Quartile WBD

+ 53%

Source: Catalyst 2007, The bottom line: Corporate performance and women’s representation on boards

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Are more diverse boards better?Better Financial Performance • Boards with three or more women have stronger than average performance results.

Financial performance at companies with 3 or more women board of directors

16.7% 16.8%

10.0%

6.2%

11.5% 11.5%

0.0%

5.0%

10.0%

15.0%

20.0%

Return onequity

Return on sales Return oninvestmentcapital

WBD =3Average

Source: Catalyst 2007, The bottom line: Corporate performance and women’s representation on boards

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Better Financial Performance

• In 2007, a study was conducted by comparing the financial performance of the top 89 European listed companies with the highest level of gender diversity in top management positions vs. the average financial performance of their sector.

• Results: The companies with the highest gender diversity outperformed the average:

– Return on equity (+10%): 11.4% versus the average of 10.3%

– Operating results/ EBIT (+48%): 11.1% versus the average of 5.8%

– Stock price growth (64% versus 47% over 2005‐2007)

Source: McKinsey, Women Matter: Gender Diversity, a corporate performance driver, 2007

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Better Corporate Governance• Diversity brings positive qualities to corporate governance.

• The Conference Board of Canada (CBoC) described in a report the results of its study of 141 Canadian boards. Notable results were:

– 94% of boards with three or more women had conflict‐of‐interest guidelines, compared with 68% of all‐male boards, and

– 86% of boards with three or more women established a code of conduct for the organization, compared with 66% of all‐male boards.

Source: CBoC, Women on Boards: Not Just the Right Thing…But the Bright Thing, May 2002

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Better Corporate Governance• Notable results from an Australian survey of 849 directors:

– Boards with more women are more likely to

• Conduct formal board appraisals (72% of gender diverse boards versus 49% of all‐male boards)

• Ensure formal induction programs, and

• Increase transparency by placing more emphasis on using search firms rather than relying on the old boys’ network to recruit new members.

Source: Insync Surveys, Australia, Gender Agenda: unlocking the power of diversity in the boardroom, 2010

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More Education• It is reported that since the implementation of a quota in Norway requiring 40% of board members of public companies to be women, boards now have more highly educated individuals on the board. In fact it is reported that women board members typically have more education than their male counterparts with 36% of women having 6 years or more of university education versus just 22% of males.

Source: Siobhan Dowling, Spiegel Online, “ Norway’s experience shows compulsory quotas work”, 2010

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– Fresh thinking and wider debate– Increased focus on problem

solving– More productive discussions and

greater unity– Women's interpersonal skills

improve dynamics

– Non‐diverse boards are less likely to express dissenting views

– Women have better attendance records than male board counterparts.

– Larger pool of individuals to chose board members from

Source: Insync Surveys, Australia, Gender Agenda: unlocking the power of diversity in the boardroom, 2010

• Other Advantages to women on boards:

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What initiatives have been taken thus far?

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Initiatives

Gender Quotas• Norway has the highest percentage of females on boards. In 2005, Norwaybecome the first country to introduce gender quotas which made it mandatory that a certain number of women (generally 40%) sit on boards depending on the number permitted on the board. For example:

– if a board is comprised of two or three directors, as least one shall be a woman or

– if a board has more than nine directors, women shall comprise of at least 40% of directors.

• Norwegian companies which fail to comply may be subject to delisting on the stock exchange or dissolution.

• Since the introduction of the law “ there have been no complaints from employers associations, nor have CEOs stated that they have had problems finding suitable candidates for the board.”

Source: Deloitte, Women in the boardroom: A global perspective, January 2011 Siobhan Dowling, Spiegel Online, “ Norway’s experience shows compulsory quotas work”, 2010

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Initiatives

Gender Quotas• Other countries have followed Norway’s lead by legislating gender quotas. These include France (2011), Italy (2010), and Spain (2007).

• Canada currently has no gender quotas for women on boards or in seniormanagement positions. There is one exception:

– Quebec: Legislation requires state owned enterprises to have 50/50 gender equality on boards as of December 14, 2011.

• Do men and women want gender quotas? A U.S. study asked whether there should be a quota imposed requiring a certain percentage of women on boards, 59% of women and 93% of men strongly disagreed.

Source: Deloitte, Women in the boardroom: A global perspective, January 2011 Heidrick & Struggles, 2010 Board of Directors Survey

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Initiatives

Gender Quotas• Concern regarding quota laws: Trophy women directors –unqualified / figure head women directors.

– One example is from Norway, where one woman was appointed to 18 boards.

Source: Douglas M. Branson, Women on Boards of Directors: A global snapshot, February 2011

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Initiatives

Comply or Explain requirements• Companies are required to “comply” or they must “explain” why they do not. Examples:

– UK Corporate Governance Code – “The search for board candidates should be conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender.”

– Australia Stock Exchange: companies must “comply or explain” the following:

• their policy on gender diversity,

• disclose in each annual report the measurable objectives for achieving gender diversity,

• disclose in each annual report the proportion of women employees in the whole organization, women in senior executive positions and women on the board.

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Initiatives

Comply or Explain requirements– US SEC rule requiring disclosure in proxy circulars ‐ The rule requires companies to disclose: (1) whether diversity is a factor in considering candidates for nomination to the board of directors; (2) how diversity is considered in that process; and (3) how the company assesses the effectiveness of its policy for considering diversity. The rule came into effect February 28, 2010.

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Initiatives

Canadian Board of Diversity Council • In Canada, the Canadian Board of Diversity Council (“CBDC”) was launched in 2009 in order to promote board diversity in Canada, including diversity in gender.

• Some high‐level points about the CBDC are:

– The CBDC has “a goal of increasing women on FP500 boards from 14% in 2009 to 20% by 2013.”

– The CBDC is aimed at educating the private and public sector leaders on diversity practices.

– One way it educates is through an Annual Report Card created to address board diversity. This report card is based on a survey sent to FP 500 companies asking questions relating to diversity, such as how many women are on your board of directors?.

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Initiatives

Shareholder Activism• Jim Leech, president and CEO of the Ontario Teachers’ Pension Plan: “I don’t believe this is a woman’s issue. I think it is a business issue that is equally important for males. I come from it not as an issue of fairness but as an issue of competence of the boards. As a major investor in Canadian and other international companies, what we want to see are boards comprising the best‐qualified people. If you are limiting the pool to only 50% of the population I think it goes without very much thought that you can’t possibly be striving to have the best. That’s where it needs to be attacked.”

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What can we do as individual women?Give priority to gender diversification

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So often, it takes only one woman to make a difference. If you empower that woman with information, and training, or a micro‐loan, she can lift up her entire family and contribute to the success of her community. Multiply that one woman's impact by a hundred or a thousand, and perhaps a million

lives can change."

Condoleezza Rice, former US Secretary of State

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What can we do as individual women?

• If on a board.– Be a mentor.– Create written polices on board diversity.

Source: CBDC, online: http://www.boarddiversity.ca/en/home

Percentage of Boards of the FP 500 with written diversity policies

No, 68%

Yes, 16% Don't know, 16%

–Diversity is a higher priority among the FP 100–Of the 16% that have written diversity policies, 30% are in the FP 100.

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What can we do as individual women?• If you work for corporation with a board.

– Build awareness around gender diversity. Encourage your organization to diagnosis your company’s diversity and determine the gender diversity indicators. Some of these indicators include:

• Proportion of women in the various business units, at each level of management and in new recruits.

• Determine if there are any gaps in pay between men and women in similar positions.

• The ratio of women promoted vs. men.

– These indicators may be used to build a corporate diversity program, including policies on board diversity.

Source: McKinsey & Company, Women Matter 2, 2008

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What can we do as individual women?• Volunteer

– Educate yourself on what it means to be on a board. You can enrol in CBDC's educational program to prepare yourself for board service or you can educate yourself through other means.

– Most importantly: be prepared and know what it means to be on a board.

• Set up a women’s network in your organization

• How to be successful? Do not be self‐deprecating!

“The claim is made by linguistics expert Dr Judith Baxter, who undertook an 18‐month study into the speaking patterns of men and women at meetings in seven major well‐known companies, including two in the FTSE‐100. The research found that women were four times more likely than men to be self‐deprecating, use humour and speak indirectly or apologetically when broaching difficult subjects with board members in order to avoid conflict. And it doesn't always work.”

Source: UK Observer, Women told to speak their minds to get on in boardrooms, June 2011

Thank you!QUESTION OR COMMENTS?

Presented by: Colleen Cebuliak, Partner, Fraser Milner Casgrain LLP

The preceding presentation contains information regarding why boards need more women members. If you require additional information, please retain professional assistance.

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Why Boards Need More Women