Teachers seeks quota for women on boards

The Ontario Teachers’ Pension Plan says companies listed on the Toronto Stock Exchange should be forced to have at least three women on their board of directors by 2020 or face a severe and controversial sanction: delisting from the exchange.

In a letter to the Ontario Securities Commission, which at the request of the provincial government is already looking into creating a regime to encourage more gender diversity on boards, Teachers’ senior vice-president of public equities Wayne Kozun says the regulator’s proposal of a more flexible “comply or explain” model doesn’t go far enough.

The response to the OSC’s call for comments on the issue of gender diversity has been mixed, but many supporters are in favour of the proposed “comply or explain” model that would give companies flexibility in increasing the number of women on their boards.

Even the British Columbia Investment Management Corporation, a major institutional investor that supports a target of 30% female representation on boards, stops short of recommending a quota system.

chief executive doug Pearce concludes that while it might be effective, quotas “would not be acceptable in canada today.”

The proposal is perhaps the most aggressive one put forward to date on the issue and has sparked the ire of those who oppose heavy-handed quota systems. but Mr. Kozun said it would be a solution that could generate better stock returns.

“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,” Mr. Kozun said in the letter, adding that the pension plan’s proposal is “not based on meeting an arbitrary target simply for the sake of meeting that number.”

He said the threshold of three women directors was selected based on a “review of the research,” which also led pension plan officials to conclude that “without such a push it is not evident that sufficient progress in improving diversity would be made.”

Four women are on Teachers’ nine-member board, including chairwoman eileen Mercier who was appointed to the position at one of canada’s largest pension plans in 2005. In an interview, Mr. Kozun said he expects the pension plan’s proposal will receive support from teachers in Ontario, 73% of whom are women.

Mr. Kozun said officials at the pension plan felt the need to push into the controversial territory because simply encouraging companies to comply with suggested goals and allowing them to explain themselves when they do not has already proven ineffective in jurisdictions outside canada, including Norway and the u.K. Sanctions or even threats of sanctions, on the other hand, have been effective in achieving a measurable increase in women on boards, he said.

Improvements in gender diversity on canadian boards have “flat-lined,” Mr. Kozun said, calling the lack of progress in recent years “disappointing” because the poor showing comes despite “a great deal of advocacy” and discussion.

“Over the past decade, the number of boards that have no female directors has consistently varied between 40% and 50%, and the percentage of women on boards in canada has remained in the 10% to 13% range,” Mr. Kozun wrote in his letter to the OSc. As a result, he said, “there is a need for an approach to have an immediate and profound impact.”

In an interview, Mr. Kozun said the dearth of women on boards doesn’t make sense when women make up a much larger proportion of graduates from canadian law schools and directors’ courses.

In his letter to the OSc, he detailed Norway’s success in boosting female representation on boards, which came about only after the country adopted a 40% quota and threatened to dissolve companies that didn’t comply.

“It is our view that without the implementation of a quota and the threat of sanctions Norway would not have met their board gender diversity target,” Mr. Kozun wrote.

He says the u.K. government recently threatened to impose sanctions after companies failed to sustain growth with a voluntary target of 25% of women on boards.

debate about women on boards continues to rage beyond canada’s borders, notably on Twitter where the soonto-be publicly traded company behind the instant global communication service is under fire for having no female directors and just one woman in senior management.

In Teachers’ letter to the OSc, Mr. Kozun cites a study that suggests companies that have woman on their boards outperform those that do not, and another that looks into targeting a “critical mass” of women on boards to ensure their voices are heard. The Teachers’ proposal contemplates making the requirement to have at least three female board members a listing requirement of the Toronto Stock exchange, which would be enforced by the exchange. “It is our view that an appropriate sanction for noncompliance with our proposal would be the threat of delisting companies,” he wrote.

rob Prichard, chairman of the bank of Montreal, says he doesn’t support quotas, and he thinks a comply or explain model should be given a chance to work before jumping to more forceful intervention.

“I do not support statutorily imposed quotas. I do support boards setting goals for themselves and measuring their progress towards diversity,” Mr. Prichard said in an interview. “The Teachers’ position assumes the comply or explain approach will fail and that a stronger intervention is required now.”

The comment period for the OSc’s review of gender diversity on boards and in senior management ended Friday. The next step will be a roundtable discussion to take place Oct. 16 at the regulator’s headquarters in Toronto. Jim Leech, chief executive of the Ontario Teachers’ Pension Plan, which manages nearly $130-billion on behalf of 300,000 active and retired teachers, is one of the scheduled speakers.