Ontario’s plan to use a “comply or explain” approach in its efforts to increase the number of women on corporate boards and in senior management roles is a smart and welcome idea, but it will be need to be monitored closely. The EU and the United Kingdom, where the idea originated, have seen mixed results, a fact the Ontario government needs to be honest about.
Laurel Broten, Ontario’s minister responsible for women’s issues, said Monday her government is working with the Ontario Securities Commission to find ways to compel companies to hire more women in senior positions. By one count, women fill only 10 per cent of the seats on the boards of public companies. Tellingly, Canada, unlike many other countries, has no quotas for women on boards and doesn’t require any disclosure on the matter.
Using a “comply or explain” approach would be a good way to begin to turn things around, and, as the OSC’s rules govern any public company traded in Ontario, it would have a nationwide impact. The idea was developed in the UK as an alternative to a one-size-fits-all regulatory framework. Regulators set a code of conduct that companies must either comply with or, failing to do so, provide justification on an annual basis about why that is the case. This allows companies to adapt to the spirit of the code without being narrowly restricted, and it permits shareholders to take companies to task when their explanations of why they have deviated from the code aren’t adequate.
In the best of all possible worlds, “comply or explain” even has a market impact, as it is possible that shareholders will sell their shares in a company that falls short in either the compliance or explanation departments.
Various studies on the impact of the “comply or explain” model in European countries tend to all reach the same conclusion: that it has been effective in some areas, such as in getting British companies to hire more independent directors, and a failure in others, such as Germany’s efforts to get companies to disclose their remuneration of board members. The bottom line is that this is a voluntary regime that places its hopes of success on the goodwill of companies and the vigilance of shareholders and other stakeholders.
Ontario is smart and forward-thinking to consider the “comply or explain” model, and there is every reason to believe it could help improve Canada’s poor track record when it comes to women in senior roles. It is a far better option than enforced quotas, but it will only work if there is a concerted effort on the part of all stakeholders to ensure that it does.