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Women in the boardroom: Has the time for quotas arrived?

Aaron Dhir is an associate professor at Osgoode Hall Law School and the Oscar M. Ruebhausen distinguished senior fellow at Yale Law School. Sarah Kaplan is the director of the Institute for Gender and the Economy and a distinguished professor at the University of Toronto's Rotman School of Management.

On Thursday, the Canadian Securities Administrators (CSA) released its third review of corporate Canada's disclosures concerning the number of women in the boardroom and the executive suite.

Since 2015, regulators from most Canadian jurisdictions have required companies to be transparent about the representation of women in their governance. In this "comply-or-explain" approach, firms must publicly disclose whether they have a written policy on selecting female directors, whether they take gender representation into account in composing their governance structures and whether they have adopted numerical targets for women on their boards and in their executive offices. If companies have not done these things, they must explain why.

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When the Ontario Securities Commission (OSC) moved forward with the comply-or-explain rule, it proposed to monitor companies' progress for three years and then to evaluate whether the rule was working and whether other regulations were needed.

We are now at the end of the three-year period. What have we learned?

While there has been some noteworthy progress, men continue to dominate the upper echelons of the Canadian business world and women remain underrepresented. In the CSA's first review, it found that women held 11 per cent of total board seats. In the study released on Thursday, that number increased to 14 per cent. Strikingly, almost 40 per cent of companies still have no women on their boards, and only 35 per cent reported having a written diversity policy. While one might hope that firms would adopt internal targets to address these gender disparities – on the theory that what gets measured gets done – only 11 per cent have done so. Equally disappointing is the fact that 74 per cent of new board vacancies over the past year were filled by men.

How do companies explain the decision not to adopt their own targets? Most commonly, they rationalize this choice by arguing that they select candidates based on merit. As one company with no women on its board wrote last year: "The board will not compromise the principles of a meritocracy by imposing … targets regarding the representation of women on the board."

However, decades of social science have established that our notions of meritocracy are gendered and that our ideas of the "ideal worker" and the "ideal board member" have been crafted around stereotypically male characteristics. Research shows that even equally qualified candidates for jobs are deemed as less hireable if they are female. Indeed, meritocracy has been shown to reinforce the position of those with privilege. The notion of meritocracy is therefore not only an excuse or explanation, but also gets in the way of achieving actual meritocracy.

On paper, the rule that we have adopted in Canada is among the best in the world. It requires companies to share extensive information, and addresses the entire governance ecosystem – the board and the executive suite – not just the board. It may be that the rule simply needs more time to do its work. But the near lack of overall movement after three years under the comply-or-explain regime leads us to believe it is time to consider more prescriptive forms of regulation, potentially including quotas.

The quota approach first adopted in Norway in 2008 requires corporate boards to maintain particular levels of gender balance. While undoubtedly controversial, it has spread to countries such as Germany, France, Italy, Belgium and Iceland. What do we know about the effect of quotas? Unsurprisingly, countries that have adopted them have increased the number of women in corporate governance and tend to do so at a pace that exceeds countries that rely on disclosure provisions alone.

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But that is not the full story. Perhaps counterintuitively, board members in countries that have adopted quotas tend to support these laws. One of us has interviewed corporate directors in Norway – male and female – about their lived experiences with the Norwegian law. While many were originally against the quota, their opinions changed after they saw the law in practice and experienced its effects. They ultimately realized that meaningful progress likely necessitated a hard form of regulation. As one Norwegian director confessed: "If a new category of society shall be given power, someone will have to give away that power. And that is not an easy thing to do." Research shows that quotas often have the net effect of increasing overall quality by getting the best of all populations rather than digging deeper into only one population. It also shows that those that have quotas like them, and those that do not, fear them.

Quotas are a blunt instrument, to be sure. But in calling for increased gender representation in boardrooms, we must be mindful that it would require shifting deeply ingrained social norms. A wealth of social science research has observed the powerful effect of unconscious bias that is embedded not only in our minds but also in our systems, processes and structures. This manifests itself in the faulty assumption that men are more effective leaders than women and that qualified women do not exist. For a law to have a fighting chance of displacing these dynamics, it must be equally potent, and quotas may be a necessary corrective.

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