This blog post originally appeared in Norton Rose Fulbright’s Special Situations blog.

In an earlier post, we commented on the formal amendments to National Instrument 58-101 – Disclosure of Corporate Governance Practices and Form 58-101F1 – Corporate Governance Disclosure imposing enhanced disclosure requirements with respect to female representation on the boards and in executive officer positions of TSX-listed issuers.  As we discussed earlier this year, the correlation between gender diversity on boards and company performance is compelling from an investment value perspective.

It is also beneficial for issuers to recruit women into upper management roles. In a recent academic study examining management diversity, “Do Women Stay Out of Trouble”, the authors of the study found that women in management are typically more risk-averse, less overconfident, and more law-abiding than their male counterparts, and consequently, the presence of women in a firm’s top management team lowers its risk of being sued. The authors analyzed various types of lawsuits against firms, spanning from 1996 to 2010. They measured gender diversity as the ratio of women to men among the top five managers of a firm and found that there was an inverse relation between gender diversity and the number of lawsuits; more women in management seemingly led to fewer lawsuits against the firm.

Lowering an issuer’s risk profile can have a significant impact on its market value. In a Harvard Law School Forum on Corporate Governance and Financial Regulation publication dated August 20, 2015, Anup Agrawal states:

Lawsuits are clearly a very important concern for corporations. An estimate by John B. Henry in the Metropolitan Corporate Counsel (February 2008, p. 28) suggests that the annual direct litigation cost of Fortune 500 companies was a whopping $210 billion in 2006, i.e., about one-third of their after-tax profits that year. Apart from direct litigation cost, lawsuits also hurt firms’ reputations.

If gender diversity on boards and in management is financially beneficial, why are issuers still reluctant to implement diversification policies with quantifiable targets? The recently released CSA Multilateral Staff Notice 58-307 reveals that only 7% of issuers have set board targets and only 2% have set executive officer targets. Of the issuers without targets, 66% cited their commitment to selecting candidates based on merit as their primary reason for not adopting targets . The problem with this reasoning is that a selection process based on merit is an inherently biased approach given the existence of gender stereotypes.

Stanford sociologist Shelley Correll argues that “gender unconsciously bias[es] evaluations in ways that are often male advantaging.” One example she cites is a study where musicians auditioned for a spot on an orchestra, and a majority of men were selected based on their performance. However, when a curtain was drawn to separate the identity of the person auditioning from the decision-makers, a much larger proportion of women were selected as being the most qualified for the role. Correll explains:

Stereotypes…lead to errors in decision making. Instead of helping us make good decisions, stereotypes lead us to make decisions that favor certain types of people – and disadvantage others. In the case of orchestras, one can assume that the evaluators wanted to make the best choice, yet stereotypes about musicians led decision makers to pick predominantly male musicians.[1]

In order to improve their risk profile, and performance, issuers should proactively implement methods to ensure the success of gender diversification policies. This can be accomplished by developing a pipeline of female talent. A new study conducted by Lean In and McKinsey & Company recommends five ways to develop female talent within an organization: tracking metrics of key performance indicators, demonstrating that gender diversity is a top priority, identifying and interrupting gender biases within organizations, offering more flexible working options and ensuring that women have access to the same opportunities as men. In implementing these recommendations, issuers may effectively advance the representation of women more broadly among their boards and management teams.

[1] Susan Fisk, “Leveling the Playing Field, Eliminating Gender Bias in the Workplace” (April 1, 2013), Stanford University, The Clayman Institute for Gender Research, online:

The authors would like to thank Robyn McLaren, articling student, for her assistance in preparing this legal update.

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