Higher diversity, higher returns

If you could ask the government to mandate higher returns, you’d probably jump at the chance.

Well, your opportunity is here.

Support Bill S-207, the Board of Directors Modernization Act. If passed, investors would reap the financial benefits of gender diversity. The Act says boards of federally regulated public companies must include at least 40% of each gender within six years.

Gender-diverse boards lead to higher returns. MSCI World Index companies with more female directors than average had a 10.1% mean annual return, as of September 2015, compared to 7.4% for those with fewer female directors. Further, they had higher valuations and fewer governance-related controversies.

Yet this hasn’t sunk in. Women have just 19.2% of board seats at S&P 500 businesses, and 20.8% at S&P/TSX Composite Index firms, a 2014 Catalyst study finds.

Senator Céline Hervieux-Payette has been trying to get this law passed since 2009. It’s been stymied by scheduling.

Why single out women for advocacy, instead of other marginalized groups? Because women span all of them. “It’s nonsense that [half] our population is treated like a minority,” Hervieux-Payette tells AE.

Even the bill’s critics say diversity is good—but they’re worried appointments under a quota will seem illegitimate.

Quotas don’t override merit. Female directors have more education on average than their male colleagues, says an MSCI report. And, there are tens of thousands of female accountants, lawyers, engineers and academics. Are none suitable?

We’ve given the industry plenty of opportunity to equalize representation. Seven provincial regulators already make companies disclose diversity policies and the number of female executives, but they can’t force laggards to do better.

Under Bill S-207, they’d be able to. After three years, each gender must make up at least 20% of the board. (Companies that must change bylaws to comply would get a one-year extension.) After six years, it would be 40%. Businesses that don’t comply wouldn’t get letters patent or other certifications, and any new appointments that violate the balance would be invalid.

This solution isn’t new, but the urgency is—it’s time for you to act.

This spring, Hervieux-Payette turned 75 and had to retire from the Senate, so ask your senator to take up the cause. It’s akin to voting for more money in clients’ pockets.

In the meantime, when screening stocks, look for firms with 30% or more female directors—the critical mass needed for better performance, says a study in the Journal of Business Ethics. And choose mutual funds for which board diversity is an investment criterion. Then, check your own firm. If it’s lacking women, pressure your firm to commit to The 30% Club or another initiative.

There may not be room for all of us at the top, but it’s essential there’s room for someone like each of us.

Agree? Disagree? Respond in the comments or write to Jessica.Bruno@rci.rogers.com.