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While Women’s History Month provides an opportunity to reflect on the work powerful female leaders have done to pave the way for future generations, it also provides an opportunity to consider the amount of work that still needs to be done towards realizing true gender equity. Policies to promote gender diversity on boards have been shown to benefit the pipeline of female talent in organizations, but recent actions on DEI initiatives have left people questioning the efficacy of these frameworks. 

Siqi Li, professor of accounting, believes that it’s not that people don’t care about promoting diversity, but rather they are questioning how to achieve these goals in the most effective way. Consequently, Li has devoted her current research to answering this exact question.

“When we’re looking at the companies and institutions that have received backlash for their diversity initiatives, it’s important to take a step back and pinpoint the similarities between the approaches and how they came about,” explains Li. “Many of these companies established quota-based requirements, a popular approach, which may not be the most effective way to increase representation on boards.”

Countries like Canada have adopted different approaches to encourage gender diversity and have found more success in incentivising corporate boards to add females, which is the focus of Li’s recent research: Reshaping Corporate Boards through Mandatory Gender Diversity Disclosures: Evidence from Canada.

In 2014, Canada introduced regulations that required companies to disclose consistent and comparable information about their corporate boards including term limits, the current number of female members, current policies, guidelines, and targets in place to add more. 

The type of information that is required to be disclosed is not unreasonable. In fact, it’s extremely basic company information that is already reported on regardless of whether it is required to be shared publicly.

Public access to information like this helps investors to compare companies and make more informed decisions, while also shining a light on firms that are putting in quality effort towards increasing diversity on their boards and adding pressure on firms that are not.

“Think about it like the sanitary-condition grades you see at restaurants,” explains Li. “Restaurants are not required to have the highest grade to run, but they are required to disclose their grade to customers, which incentivizes restaurants to have higher standards to please their customers. It’s the same with these public facing firms that want to appeal to investors and be rewarded for their efforts.” 

Skeptics of these sorts of regulations will claim that it’s too much work for some companies, as it’s more difficult to find qualified candidates in certain industries or that this kind of information doesn’t have the power to make changes.  

Li’s research refutes these arguments, finding that, when compared to companies in different countries during the same time period, Canadian companies with standardized disclosure requirements actually hired more women on corporate boards. 

Further, without strict quotas and deadlines imposed, companies have time to assess their current benchmark and can set goals and make plans to achieve those goals instead of scrambling to hire the first candidate that meets the requirements. 

The disclosure method does not hold companies accountable for the goals they set; it merely requires them to participate in consistent and comparable reporting. Not only does this enable shareholders to be better monitors of their current and future investments, but the research shows that firms making stronger diversity commitments also gain greater shareholder support and trust in major decisions.

“The practical implications of this research are invaluable; however, this is only the beginning,” says Li. “Future research in this space has massive potential. California is one of the first states in the US to pass regulations requiring women to be on corporate boards, so I think it will be an interesting comparison to the disclosure approach that we’ve concluded to be successful in restructuring corporate boards.”

Li hopes that her research can act as an actionable guide for other countries that may be struggling to improve gender diversity in leadership roles. Knowing that disclosure regulations are successful in increasing representation for women on boards, Li’s future research will focus on the effects of having more female directors on firms’ performance, corporate policies, profits, and overall value.