Investors and business decision makers recognise the value of gender diversity, including on corporate boards.

Gender diversity is valuable to companies because diverse teams perform better, according to global analytics and advice firm Gallup. Better problem-solving leads to improved performance. Why would companies not seek to attract and retain 50% of the workforce?

According to the US 2020 Women on Boards campaign, which aims to increase the percentage of women on corporate boards to 20% by 2020, gender diversity on corporate boards provides diversity of thought for better decision-making. It reflects the employees, customers and shareholders that it governs, and also provides an untapped pool of talent with operational experience, industry knowledge and functional expertise.

The question is how best to achieve gender diversity. While policymakers and regulators contemplate the blunt-force option of mandatory board diversity, many investors remain convinced that shareholders are best positioned to increase the ranks of female directors.

That’s according to the RBC Global Asset Management (RBC GAM) 2018 Responsible Investing Survey, which surveyed more than 540 investors from pension plan sponsors and portfolio managers to family offices and investment firms managing tens of billions of dollars in assets. More than three-quarters of respondents say gender diversity on corporate boards is important to their organisations. Most, however, said it should be left to shareholders and other market forces, not government.

The belief in shareholder action gained traction since our 2017 survey. Regardless of whether that shift reflects a growing response to the rise of the #MeToo movement or the behaviours that prompted it, it appears to indicate a growing belief in the investor community that external forces are more likely to prompt corporate leadership to action than they are to act themselves.

Levers for change

Shareholders who embrace that belief and seek to provoke change have several ways to make their diversity commitment known and to drive corporate boards and leadership toward change.

Proxy guidelines are among the most effective. The most powerful way for investors to express their priorities is by voting their shares. For example, at RBC GAM in 2019, our voting policies for Canadian and US companies instruct us to vote against the nominating committee if there are fewer than two female directors on the board. Outside of board elections, shareholders who hope to effect change should remain engaged with company leaders, consistently reminding them of the importance of diversity during regular investor communications and voting in line with their views.

Investors can also amplify their voices—and their voting power—by seeking out other shareholders with common interests and agreeing to pursue collective engagement. For example, RBC GAM is a member of the 30% Club, which seeks to co-ordinate the investment community’s approach to diversity by explaining the investment case for more diverse boards and senior management and exercising ownership rights, including voting and engagement to effect change.

Intervention works

If shareholder action fails to provoke change, or doesn’t provoke it soon enough, it then opens the door for policymakers and regulators. In California, that is already happening. In October, the state’s legislators voted to require all public companies headquartered in the Golden State to have at least two female directors on five-member boards by 2021.

If companies had acted voluntarily or under pressure from investors there would be no need for the rule, but today 25% of public companies in California still do not have a single woman corporate director. And while it may be anathema to many executives, there is evidence that regulation can be a powerful force for positive change.

Women’s sports in the US provides an example. Today, one in five girls are involved in sports. In 1972, when Title IX was established to bar sex-based discrimination in programmes at schools receiving federal funding, it was only one in 27, according to the Women’s Sports Foundation. Market forces alone weren’t driving girls to sports, but with the nudge of a single rule, their participation and all the benefits that accompany it have surged.

Today, the question of whether businesses with more gender diversity perform better has largely been settled. And yet even in the face of a growing pile of research showing the compelling business case for women on boards, homogeneous male boards still dominate. (No one ever asked for the business case showing how adding more homogeneous members to corporate boards adds value to decision-making and governance.)

We are hopeful that as shareholders act on the beliefs they express in our survey and use the tools we’ve outlined here, we will begin to see real change in corporate board rooms. Proxy voting and management engagement are the best hopes to boost the number of women on boards—before regulators step in.

Catherine Banat is director of US responsible investing, RBC Global Asset Management.