Board Walk: How to Invest in Women Leaders

On a blustery morning, visitors to Toronto’s Design Exchange, a beautiful Art Deco building that once housed the city’s original stock exchange, are greeted to a multi-colour light installation called “Equalizer”. It’s a fitting choice for International Women’s Day and the event to launch RBC’s ETF that’s focused on Canadian companies who demonstrate, (as opposed to pontificate), on gender diversity. Called RBC’s Vision Women’s Leadership, ticker RLDR, it joins a growing list of investment products in this hot category.

In 2016, Bank of Montreal was the first out of the gate with its Women in Leadership Fund that now has $34 million assets under management. “This was a natural extension for us,” says McKenzie Box, Senior Product Manager, BMO Global Asset Management. “Our goal is to be the ‘Bank for Women’ and we wanted to create an investment fund that makes an impact.”  The fund invests in North American companies that have either a female CEO or women comprising 25 per cent of the board. Evolve and Mackenzie Investments have also launched products to support businesses that support women and diversity.

The RBC ETF is the first Canada-only product, says Lindsay Patrick, Director, Global ETF Strategy. “With this ETF, we’re creating an incentive mechanism for Canadian companies to have at least 30 per cent representation of women on boards. ETFs are a financial innovation. We can leverage this innovation to innovate greater diversity within Canadian companies. And, because no one wants to get kicked off the index for non-compliance, this will really shift the momentum around women on boards.” The reason for the 30 per cent is it tips “minority” input from tokenism to actionable decision-making. Since most boards consist of 10 members, 3 is the minimum to meet the criteria.

According to the latest data, the corporate world could use a strong nudge. In the 13th annual Rosenzweig Report, which tracks Canada’s top 100 publicly traded companies, women occupying the top jobs has increased—wait for it—by .042 per cent since last year to 9.44 per cent. In the U.S. the numbers are weaker, with a 2 per cent decrease in companies with women in senior management, according to Grant Thornton, a consultancy.

The reason that products like RBC’s Vision Women’s Leadership ETF and BMO’s Women’s Leadership Fund are so important is for a simple reason: money talks. “Gender progress requires a business-to-business solution,” says Beatrix Dart, professor and executive director, Initiative for Women in Business, Rotman School of Management. “It requires CEOs putting peer pressure on other CEOs and on supply chain procurement.” Shifting capital to support diversity, as OMERs has done as with the RBC’s ETF is the part of the solution.

The business case for women on boards is unequivocal. Even with a minimum of 30 per cent women on boards, corporate performance subsequently increases and cases of bribery, corruption decrease.

One of the arguments against gender quotas on boards is the risk of hiring underqualified members. Yet, currently many boards recruit through an informal social and business network that is not merit-based. (“Hey Jim…”) The tendency to occupy board seats for upwards of 15 years also contributes to stagnation and an “old boys’ network”, says Mary Jo Hadad, former CEO of Sick Kids Hospital who now sits on several boards.

Having boards reflect reality is a worthy goal, yet what effect, if any, does having more women on boards have on the fortunes of the rank-and-file? As it turns out, not much, according to a recent survey by The Economist. There is no evidence that having women on boards has a beneficial effect on women at lower levels. Nor are female board members any more enlightened than their male counterparts when it comes to decision-making, such as initiating lay-offs.

Still, since women make up slightly more than 50 per cent of the population, having more women on boards and in other senior corporate roles is a worthy start. As actress Frances McDormand said when accepting her Oscar for Best Actress, “inclusion rider, people.” And, no one should mess with Frances.

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