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Anita Anand is the J.R. Kimber Chair in Investor Protection and Corporate Governance at the University of Toronto. Krupa Kotecha is a graduate of the University of Toronto Faculty of Law.

Earlier this month, State Street Global Advisors erected a statue of a little girl directly facing Wall Street's iconic bull. The so-called "fearless girl" statue is a symbol of State Street's somewhat timid ultimatum: If the corporations in which it invests do not take measures to improve boardroom gender diversity, it will vote against the re-election of nominating and/or governance committee chairs.

State Street's statue underscores the reality that the corporate response to the lack of women on boards in both the United States and Canada has been weak and that Canada's comply-or-explain regime has been ineffective.

To be clear, this regime requires all companies listed on the Toronto Stock Exchange to disclose their policies regarding the representation of women in senior management and on their boards of directors, along with policies related to director term limits. Companies must provide an explanation for the absence of a policy or term limit in the event that the company does not have such an oversight mechanism in place.

In its review of the 215 largest Canadian public companies, the Canadian Securities Administrators found that, following the implementation of this regime, women represented only 18 per cent of board seats in 2016 (a two-point increase from the year before). Women made up 12 per cent of all board seats examined in the study, up 1 percentage point from 11 per cent in 2015. Notably, banks are an outlier here: Canada's largest banks have an average female board representation of about 35 per cent.

Unsurprisingly, this lack of movement on the part of Canadian corporations has led institutional shareholders of three Canadian public corporations to launch proxy resolutions demanding that the targeted companies add more women to their boards. The proposals were part of a campaign organized by the Shareholder Association for Research and Education, a Vancouver-based organization that assists pension funds, mutual funds and asset managers with instigating reforms in corporate governance and policy.

The dissatisfaction with the current regulatory regime highlights the need to consider mandatory quotas. During the consultation period for the comply-or-explain regime, the Ontario Teachers' Pension Plan vocally advocated a stricter regulatory regime involving quota requirements for board members. In a letter to the Ontario Securities Commission in 2013, Wayne Kozun, senior vice-president of public equities at OTPP, voiced the pension fund's view that TSX-listed companies should be required to appoint at least three women to the board and that companies that fail to comply with quota requirements within a specific time-frame should face severe consequences, including de-listing.

The challenge is to spark the impetus within firms to adopt internal action – the CSA found that only 9 per cent of companies have internal targets for women on their boards, with a mere 2 per cent having targets for women in executive positions. Enforcing quotas for women's representation on boards would leave companies with no option but to examine internal processes and policies and ultimately to implement change.

Such a move would not be unprecedented. In fact, several of the largest countries in Europe – France, Germany, Belgium, Iceland, Italy and Norway – have all adopted quota requirements for boards. These countries have recognized that gender disparity in corporate leadership will not be fixed by market forces alone, even with voluntary disclosures. Last week, Iceland took another step – the country will now require that both private and public companies with 25 or more staff members obtain a certificate indicating equal pay for employees, irrespective of "gender, ethnicity, sexuality, or nationality."

When Norway replaced its voluntary target regime with legislation requiring publicly listed companies to achieve 40-per-cent female board member representation by 2008, it experienced backlash against the regime. Yet female board membership in Norway successfully reached the required 40-per-cent threshold by 2009 – a stark improvement from 2005, when women held less than 13 per cent of the country's board positions. Moreover, research conducted by Oslo's Institute for Social Research indicates that the initial resistance against the law's application in the private sector has now disappeared and that "boards just get on with business like before."

Investors are asking for, and in some cases demanding, more women on corporate boards. However, investors are limited in the extent to which they are able to effect change. Perhaps the time has come for regulators to acknowledge the ineffectiveness of the comply-or-explain approach. The question then becomes whether a new regulatory approach – mandatory instead of voluntary regulation – should be developed to address this conspicuous deficiency in Canadian corporate governance.

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