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Report on Business TD study calls for regulators to stay the course on gender disclosure policy

The boards of Canada’s largest public companies have made rapid progress on gender diversity over the past four years, and regulators should give current disclosure rules more time before considering tougher policies, a new report argues.

A Toronto-Dominion Bank study released on Wednesday shows women accounted for 24.4 per cent of directors on the boards of companies in the benchmark S&P/TSX Composite Index as of 2018, an increase from 12.9 per cent in 2014 before new reporting rules were introduced by provincial securities regulators.

Companies in the composite index with annual revenue less than $1-billion have showed the greatest progress in percentage terms, with women comprising 22.4 per cent of directors in 2018 compared with 10 per cent in 2014. Women represented 30.9 per cent of directors at the largest companies in the index – those with revenue of more than $5-billion – up from 22 per cent in 2014.

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Canadian securities regulators introduced new rules in 2015 that require publicly listed companies to report annually on their gender diversity policies for boards and disclose whether they have set targets for women. Companies are not required to have diversity policies or targets, but must explain why they do not – an approach known as “comply or explain.”

When the rules were introduced in 2015, the Ontario Securities Commission said it would review progress after three years to determine whether the policies have been effective or need to be strengthened. Among the options raised by diversity advocates, regulators could require companies to have formal diversity policies, require policies to include targets, or set mandatory quotas.

But TD Bank chief economist Beata Caranci said she believes progress has been steady under the new regime and there is no evidence that companies in the composite index have stopped adding women or are beginning to plateau in their progress.

“When I look at these TSX results, it was actually a little faster than I was expecting to see, and part of it is because there was such a low starting point,” Ms. Caranci said in an interview.

She said her review of progress in other countries suggests “comply or explain” rules can be as effective as mandatory quotas if companies have enough time to change their boards. Ms. Caranci said several large institutional shareholders have also adopted policies in the past two years to push companies to improve diversity, which should have an additional impact.

“We still have yet to see those outcomes come through in the data, so that’s why I think it would be premature to make any shifts at this stage,” Ms. Caranci said. “I think we’re still in early phases of the changes that are occurring.”

A report released in September by Canada’s provincial securities commissions showed women filled just 15 per cent of board seats in Canada in 2018, a modest improvement from 11 per cent in 2015. That study looked at 648 companies in Canada while the TD report considered the 243 members of the S&P/TSX composite index.

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Ms. Caranci said the September report included very small companies where progress is often slowest. Many of them are run by their founders and have only a few directors, which means board turnover is low.

Companies with revenue less than $1-billion account for two-thirds of the S&P/TSX composite index. The TD report said that tier of the market must show significant improvement in order to shift Canada’s overall diversity numbers. If all the smaller companies on the index had three female directors, for example, the proportion of women over all would climb to 34 per cent from 24 per cent.

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