Canada will lose a competitive edge if women continue to be a significant minority in corporate boardrooms, suggests a recent report released today by Catalyst, a leading non-profit research organization.

In fact, the study suggests that the persistent under-representation of women on corporate boards and the extremely slow pace of change may have disturbing implications for company performance and governance in Canada.

The 2007 Catalyst Census of Women Board Directors of the FP500: Voices from the Boardroom report found that women represent 13% of corporate board seats in the FP500. Worse, this representation increased by only 1% since 2005, explained Deborah Gillis, vice-president of North America for Catalyst.

The slow inclusion of women in corporate governance is a fact that does not seem to be changing. “Since we began tracking this statistic in 2001, we have noted an average increase [in the inclusion of women on corporate boards] of 0.5% per year.” This translates to 40% of FP500 companies in Canada that have no women directors on their boards.

“This is really about the competitiveness of business,” says Gillis. “Despite the fact that half the labour force, half the population and a key group of shareholders and consumers are women — who represent 80% of the purchasing decisions — the exclusion of women in corporate governance means that companies are ignoring their bottom line.”

This bottom line impact has been shown in a number of previous studies, including a report released by Catalyst in fall 2007.

“We found a strong correlation between women on the board and finance,” she explains. “On average, looking at the Fortune 500, those companies with the highest representation of women board directors outperformed those with the lowest representation, and not just by a little. Return on equity was 53% higher; return on sales was 42% higher; and return on invested capital was 66% higher.”

For advisors, this means paying attention to the companies that are proactive, says Gillis.

“The tendency for boards to recruit from the same narrow pool of candidates acts as a barrier to women seeking board seats,” said Gillis. “Board chairs, CEOs and corporate governance chairs are in unique positions to jump-start the process and drive change. By championing gender diversity and looking beyond the C-suite and FP500 boards to find qualified women directors, they can provide a better, more transparent environment in which Canadian businesses can succeed.”

For companies, this means broadening the list of woman from the C-suite — which amounts to 39 available candidates in Canada — to include those in the corporate office. “If directors in the FP500 and the 100 largest subsidiaries in Canada expanded their search to include corporate office candidates, they would have 1002 woman to choose from.” Gillis adds that these women have significant expertise in law, accounting, human resources, IT, and other “critically competitive areas,” that all boards seek.

Today’s report also found that:

  • Over 20% of vacant board seats and 30.5% of board seats in public companies were filled by individuals already serving on a corporate board.
  • Women were “recycled” in public companies at greater rates than their male colleagues — 40% of female directors as compared to 28.9% of male directors sit on multiple FP500 boards.

Gillis, however, is optimistic. “We do see some signs of progress — small signs, but progress,” she says.

  • The number of companies with multiple women directors increased by 2.5 percentage points since 2005, to 28.5%.
  • Women’s representation as board chairs increased 1.3 percentage points since 2005, to 3.4%.
  • The percentage of key public company board committee chairs held by women rose one percentage point to 6.8%.

In order for companies to become more competitive — and increase the value to their stakeholders — Gillis suggests that they “update and create skills matrices to determine what competencies are currently represented on the board, and what other skills are needed.” Then, “demand a diverse slate of candidates,” by looking “beyond the C-suite for qualified candidates with track records in other senior level positions.”

“Our research shows a compelling case for diversity on boards; what we want to do is draw awareness that increased diversity is good for business, good for the bottom line,” says Gillis. “We want to issue a call to action to the corporate community to be much more proactive in looking for women directors.”

Filed by Romana King, Advisor.ca, romana.king@advisor.rogers.com

(06/09/08)

Originally published on Advisor.ca