- Corporate Canada needs more female leaders. Progress on board and senior leadership diversity continues to disappoint – and COVID-19’s pressure on women is not helping.
- To address the ‘broken rung’, companies should set the tone at the top, create upward mobility and remove barriers to advancement. Jennifer So, Portfolio Manager of the BMO Women in Leadership Fund, shares best practices.
- Investors can contribute through enhancing their investment practices and advocacy efforts, and continuously increasing their expectations of investee companies.
In 2021, as the pandemic wore on, women experienced outsized upheaval to their work and home lives posing a risk to hard-won gains. As responsible investors who recognize the positive relationship between social equality and long-term value creation, BMO Global Asset Management is pressing for more and better efforts to achieve diversity, equity, and inclusion (DEI). In our 2021 reflections for International Women’s Day, we noted:
Women are often the first to feel the negative impacts of systemic ESG challenges, including public health crises and climate change. But we also need women to address those challenges: research by PwC shows that female directors consistently prioritize ESG issues in a way their male counterparts do not, and can better identify the links between ESG and company strategy.
As investors with CAD$168 billion assets under management in Canada (as of September 30, 2021), we have a vested interest in seeing more women at the helm in corporate Canada. While there has certainly been progress over the last few years, despite efforts from shareholders, industry and advocacy groups, regulators and certain companies, women still only represent 23% of Canadian board directors (up 2% from 2020) and less than 20% of executive officer roles (with only 11% of firms setting targets to increase this number) at all TSX-listed companies. And while specific intersectional race and gender data is not yet being reported, we know the picture is far worse for women from Black, Indigenous, and other visible minority groups given the total number of representatives from these populations (men and women) on Canadian public company boards in 2021 was only 7%. Many high-income countries have underrepresentation of women and racialized minorities in leadership and decision-making roles, but Canada stands out specifically given its highly educated female population. Canada is a leader amongst advanced economy nations for gender parity in educational attainment, but lags behind peers in women’s economic participation and opportunity for political empowerment. This means highly educated talent in Canada is being underutilized, a problem we can’t afford to ignore.
Barriers to cultivating diversity
Through an active investment approach that combines diversity, fundamentals, and company engagement, BMO’s Women in Leadership (WIL) Fund targets U.S. and Canadian companies (and can invest 10% outside of North America) that demonstrate leadership in gender diversity. For example, WIL fund companies have an average of 37% of women on their boards and over 40% in the C—Suite (named executive officer). In-depth research for the fund has given us good insight into the barriers to cultivating diversity within organizations. For example, we should forget the glass ceiling – equality is hindered by the ‘broken rung’. Women experience lower promotion rates early in their careers, which translates into fewer qualified women at each subsequent level. In finance, the ‘magic’ of compounding starts with a small number, and over long periods of time grows into a very large number. The broken rung is compounding in reverse.
Forget the glass ceiling – equality is hindered by the ‘broken rung’
Tangible steps for companies to improve
Different companies have different DEI challenges. Some tangible suggestions to firms wanting to really commit are organized under the following key themes:
Senior Leadership – the tone is set at the top
- Establish targets and accountability. In the 2021 Diversity Disclosure Practices report, authors point out that 72% of all TSX 60 companies have set diversity targets and can boast 33% representation of women board directors while only 32% of all (approximately 1500) TSX-listed companies have set targets and in aggregate have only achieved 23% representation of women on boards.
- Collect better data and improve reporting. “What gets measured, gets managed”. To develop effective DE&I enhancement strategies you need to understand your firm’s workforce composition and where the gaps are along the pipeline. Alphabet stands out in recent years as a firm that provides intersectional gender and race data in hiring and attrition of permanent employees in both tech and non-tech leadership roles as well as for gender pay equity.
Upward mobility
Require Gender balanced slates. Require a gender balanced slate throughout the HR process from new hires to promotions. Adobe tackles opportunity parity and discloses promotion rates by gender globally and underrepresented minorities in the U.S.
Remove barriers to advancement
- Conduct outreach and build foundational skills early. For example, lack of women is an acute problem in science, technology, engineering, math and finance areas. If these skills are essential within your organization, foster interest in them amongst underrepresented groups as early as middle and high school. Developing external relationships with community organizations, offering mentorships, and ‘returnship’ programs for experienced talent can build a rich pipeline.
- Inclusive and equitable policies. Retention and advancement are key to ensuring a diverse talent pipeline. Does your organization offer work hour flexibility, parental/caregiving leave and encourage uptake by men as well as women? Be thoughtful about hybrid work and ensure employees on-line and in-person have equitable access to work assignments, leading meetings, and other opportunities to shine.
Investor advocacy
BMO GAM’s Responsible Investment (RI) team works in tandem with fund portfolio managers, industry groups, and other institutional investors to develop and commit to improved standards. BMO Financial Group is a member of the 30% Club Investor Group Canada and is also a signatory to the Canadian Investor Statement on Diversity & Inclusion. In 2021, BMO GAM’s RI Proxy Voting team cast 91 votes against nominating committees for board chairs where there was a failure to meet a minimum of 25% female representation rule. The team also engaged with corporate leadership around setting robust, time-based gender diversity targets and commitments.
Encouragingly, women were nominated to new board director positions for TSX-listed companies 39% of the time in 2021, gains that have been attributed to recently introduced mandatory diversity disclosure for Canadian public companies as well as growing shareholder pressure. This trend is likely to be further reinforced by the recent Securities Exchange Commission’s (SEC) approval of similar mandatory comply or explain reporting for NASDAQ-listed companies requiring a minimum of two diverse board members, one of which must be female. This will apply to any Canadian firms listed on this exchange as well. In late 2020 we provided comments to the SEC to encourage its approval of the NASDAQ’s proposal and are pleased its actions aligned with our feedback.
BMO GAM will also continue to raise its expectations of companies in 2022. Our RI Proxy Voting team has notified investee companies that in 2022 the minimum female representation rule has increased to 30% and that support for board chair nominations will be withheld if there is no racial board diversity – unless there are tangible targets and strategies in place to address this. We anticipate this will be a key focus of our conversations with investee company boards during the 2022 proxy season. Given the findings that diversity at executive levels lags farther behind than at board levels, we will also prioritize conversations with companies on increasing representation in the C-suite– including encouraging the best practice suggestions noted above.
DEI is a key pillar under our Social Equality focus at BMO GAM. We help move the needle through market education, investor collaborations on standard setting, strategic asset allocation (such as that employed by the Women in Leadership Fund), proxy voting and corporate engagement. In our commitment to responsible investment and ‘growing the good in business and in life’, we will continue to drive progress towards gender parity and proportionate representation of other marginalized populations through evolving our practices internally and raising expectations for the companies in which we invest.
About BMO Global Asset Management's Responsible Investing Team
BMO Global Asset Management’s Responsible Investing team manages and develops the firm’s Responsible Investing (RI) thought leadership, publishing regular insights and deep dives on a variety of emerging environmental, social and governance (ESG) topics. The team collaborates with Investments on industry focused developments, provides ongoing ESG integration support, employs a progressive approach to stewardship activities and oversees BMO Global Asset Management’s firm-wide initiatives and commitments to responsible investing.
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