Might gender make a difference in how one reviews the application of IFRS?

It probably seems like an immediately absurd, if not offensive question. It’s a logical extension though of some of the discussion surrounding the amendments recently proposed by the OSC to National Instrument 58-101 Disclosure of Corporate Governance Practices, regarding the representation of women on boards and in senior management, which were open for comment until April 16, 2014. In a nutshell, the proposed amendments would require TSX-listed and other non-venture issuers to provide disclosure regarding the following matters on an annual basis:

• director term limits,
• policies regarding the representation of women on the board,
• the board’s or nominating committee’s consideration of the representation of women in the director identification and selection process,
• the issuer’s consideration of the representation of women in executive officer positions when making executive officer appointments,
• targets regarding the representation of women on the board and in executive officer positions, and
• the number of women on the board and in executive officer positions.

The proposals build on earlier moves in this direction by the Ontario government, informed by various roundtables and other consultations and research. The OSC doesn’t seem to have found widespread support for mandating anything in this regard, such as requiring a minimum number of women on every board, but it looks like a broad consensus exists in favour of its proposed “comply or explain” approach. At the very least, for investors who place weight on this area, the disclosures should provide a basis for better-informed decision-making about individual entities; others will hope that the changes contribute more broadly to “raising the bar” over time, for example by providing a basis for informed pressure on issuers who are particularly regressive in this regard.

As far as I can see, the OSC itself hasn’t expressed an opinion on whether it expects that greater representation by women in these areas would actually make things better in key respects (measured, say, by generating value for shareholders), but others involved in their consultations have, for example:

• Most stakeholders agreed that the “business case” for having women on boards and in senior management has been successfully established. They believed that diversity promotes stronger “organizational health” leading to improved direction, leadership, growth and performance of reporting issuers. Some stakeholders thought that Canada’s relatively lower productivity, competitiveness and innovation levels may be directly linked to the underutilization of women who represent 50% of the workforce.

About a year ago, the Globe and Mail cited Dr. Chris Bart, a business professor at McMaster University in Hamilton, as follows:

• Prof. Bart suggests the differences (between how men and woman contribute to boards) may be “genetically driven,” and women may simply be wired to have better social co-operation and consensus-building skills.
• “That skill is inbred in women much more so than it is in men. When it comes to making decisions at the board level, you need this level of inquisitiveness, you need this ability to see more possibilities and alternatives to make a decision that’s judged to be more fair and consistent over time. And women seem to have this innate ability.”

The OSC materials don’t specifically mention the work of the audit committee, or anything to do with financial statements. But as that committee and its work constitute a key component of the board’s duties, and a regular part of its agenda, it’s reasonable to think that assertions made for the board’s effectiveness in general should apply there as well. That is, the question arises of whether, all other things being equal, an audit committee containing one or more women has a greater chance of performing effectively (for example in detecting material errors, or in identifying weaknesses in what was said to them by the auditors) than one that doesn’t.

I suppose most of us would say, well, it depends on the men, and on the women. In case it’s unclear, I have no problem with the OSC’s proposal: it’s plainly addressing an aspect of current public interest. In other spheres of public policy, such as electing parliamentary representatives for instance, I’d personally probably support steps to impose (not just encourage) greater diversity (not just along gender lines but in other respects too), where (for example) that could be justified as a response to inbuilt prejudices and barriers that might prevent attaining such a condition otherwise. But notwithstanding the benefits of the proposals in shaking up the environment as a whole, it seems to me more questionable to assert that any specific situation will almost inevitably be enhanced by bringing in a woman, just as it would be to assert the same thing about a man.

Because what would that actually mean in the context of talking about financial statements? Would it mean that a woman, by virtue of being a woman, was more likely to see “possibilities and alternatives” for how, say, the impairment calculation might not have been done properly by management, or revenue might be recognized too aggressively? Might it mean a woman would be better at cutting through the boilerplate disclosure, or at thinking of better ways to format the notes? Couldn’t an enhanced awareness of possibilities and alternatives also express itself through a greater creativity in advocating for bending the rules without getting caught? Bart’s apparently biologically-determined view of the world pushes us to search for something along those lines, but it’s hard to say experience bears it out. Expressed mundanely, some of the finest accountants I’ve met were women, and some weren’t. Some of the most skillful, inquisitive, consensus-building of them were women, and some weren’t. Some of the best groups I’ve ever worked in consisted more of women than men, and some didn’t. Some female board members, from what I can see, are just as wretched as some of the men, which of course is as much a sign of equality as anything else. I imagine my experience in this regard is fairly unremarkable.

Perhaps it’s true that certain qualities, if you examine a large enough sample, are more broadly observed in women than in men, but it seems weirdly programmatic (however well-intentioned) to assert this must be a matter of gender difference, of inherent “wiring,” (rather than, say, a reflection of social structures), let alone that an individual high-performing woman should always be expected to embody these qualities (in addition to just being high-performing). It’s surely as reductive, and as blind to the real complexity of what makes sparks fly, to say that the ideal board will always have a minimum number of women (or of men) as it is to say that the ideal marriage must always have equal representation by both sexes.

So to sum up: sure, the OSC should go for it. And the effectiveness of audit committees that change accordingly will get measurably better. Except for the times when it gets horribly worse.

The opinions expressed are solely those of the author