A study conducted by global consultancy firm Alvarez and Marsal (A&M) showed that companies with more women on their boards attract fewer activist investors. In particular, the study, which surveyed 1,854 public groups, revealed that companies not targeted by hedge fund activists had on average 13.4 per cent more women on their boards.

Despite being a European study, it appears that the push for diverse governance only seems to be getting stronger across the world, and Canada is no exception. With the passage of Bill C-25, all CBCA companies with publicly traded securities must now disclose how many women and visible minorities are on their boards. In addition, global proxy advisors Institutional Shareholders Services and Glass Lewis have committed to withholding vote recommendations for the Chair of the Nominating Committee (or Chair of the Board) if a company does not have women directors on its board or if it has not adopted a formal written gender diversity policy. Thus, it is important that the boards and management of Canadian companies acknowledge the significance of these trends.

The study highlights an important correlation between women and shareholder activism, and while we do not know if it is causal, there is good reason to believe it could be. The relationship, we think, lies in company performance. Shareholders do not necessarily place emphasis on the ascriptive characteristics of their directors as much as they do the enhancement and profitability of the companies in which they invest. Harlan Zimmerman, a senior partner at Europe’s largest activist investor, Cevian Capital, explained that “boards with a greater percentage of women are not only likely to be more diverse in their thinking, but, by definition, they are less likely to function like an old boys’ club” and that “both of these should contribute to, on average, better performance.” Furthermore, with the additional barriers that women have to overcome to become CEOs, women CEOs can appear to be more competent and women-led firms are thus seen as better managed. Diversity of experience and thought also leads to better risk management and more innovation. With all of these benefits becoming increasingly understood in corporations, if a board has no women on it, it is easier for activists to depict a company as out of touch and use that as leverage to get their foot in the door.

This study emphasizes yet another reason why boards should prioritize diversity in their long-term strategic thinking. Diversity is becoming an increasingly important part of discussions around corporate governance and activists may use this as an opportunity to advance their platforms. It is important that boards and management be attuned to this reality as societal norms around inclusion continue to progress.

The author would like to thank Basmah Osman, summer law student, for her assistance in preparing this post.