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Board Games 2012 ‘Comply or explain’ gains traction for getting women on boards

Eileen Mercier, who chairs the Ontario Teachers’ Pension Plan, says she would support a voluntary target for women. “If I could wave my magic wand, it would be a comply-or-explain regime, simply because we’ve had that work before for us,” she says.

Board Games is The Globe and Mail's annual corporate governance rankings. Find this year's rankings table here and the full Board Games 2012 website here.

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Corporate directors say an old strategy could offer a new solution for boosting the numbers of women on boards in Canada.

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A so-called "comply or explain" guideline for women on boards is a popular option among directors who do not favour the rigidness of a quota, but still support some action.

Used in the past in other areas of governance, "comply or explain" lets companies voluntarily choose whether to adopt a target for board diversity. But those who choose not to comply would have to explain why.

The hope is that such disclosure policies force boards to at least discuss diversity issues, and will slowly lead to changing practices because companies would rather have positive news to disclose.

Calgary-based director Stella Thompson, who sits on the board of Atomic Energy of Canada Ltd., says she would like to see regulators start by proposing non-mandatory targets for boards to achieve diversity within a period of time, but also – as has happened in Europe – threaten to impose quotas if the corporate community doesn't step up. "Setting a target with a threat of a quota – and a need to disclose why you're not meeting the target – I think would work," she says.

"You start out with 'comply or explain' and then if it's not happening, things get tougher."

Canada has had experience with "comply or explain" rules in other governance areas in the past, including guidelines recommending independent directors for audit and compensation committees, which companies either could comply with or explain why they did not feel it was appropriate for their circumstances.

That audit guideline later was replaced with a mandatory rule. But in the meantime, many companies adopted the idea as it became an accepted best practice.

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Eileen Mercier, who chairs the Ontario Teachers' Pension Plan, says she would support a voluntary target for women.

"If I could wave my magic wand, it would be a comply-or-explain regime, simply because we've had that work before for us," she says.

Corporate director Kathleen Sendall, who sits on the board of Paris-based CGGVeritas and Enmax Corp. of Calgary, says any sort of required disclosure about diversity practices would help because people in the corporate world are "innately competitive" and will want to ensure they stand up well to scrutiny.

Ms. Mercier would also like to see governments take the lead with their own quotas for government boards, similar to rules passed in Quebec in 2006 requiring 50-per-cent women on public-sector boards. It not only sets an example, but also prepares a crop of qualified women who are better qualified to move to corporate boards.

There is a question, however, whether it is possible for Canada to easily adopt any regulation for women on boards, even if the idea were popular.

Because securities matters are provincially regulated, there is no easy way to pass legislation that is binding on all companies. Many companies are federally regulated, and could be affected by a change to federal business laws, but others – including some large companies – have opted to incorporate under provincial business legislation. Each province would have to amend its business act to cover those cases.

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Provincial securities commissions could instead introduce new diversity standards in each province. But the standards would have to be adopted in all provinces to take effect nationally, and such co-operation is not always easy to achieve depending on the issue. Another alternative is for the TSX to implement diversity rules as a listing standard.

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