Ontario Teachers’ Pushes for Three-Woman Minimum on Boards

(October 9, 2013) — Ontario Teachers’ Pension Plan has proposed that all TSX-listed companies appoint a minimum of three women directors to boards.

In response to a paper filed by the Ontario Securities Commission (OSC) regarding women in senior management positions in Canadian companies, the $125 billion fund said companies should be required to ensure their boards’ gender diversity or be sanctioned for non-compliance.

“Generally, Canadian boards have been slow to increase diversity,” Wayne Kozun, Ontario Teachers’ senior vice president of public equities, said in the letter. “The lack of improvement in the overall increase in the number of women on boards observed over the past number of years at Canadian issuers indicates to us that it is an appropriate time to address the issue of gender diversity.”

In the last decade, only 10% to 13% of Canadian boards had women directors and 40% to 50% had no female members.

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In an effort to remedy the lack of diversity, the OSC proposed a “comply-or-explain” approach. However, Ontario Teachers’ argued for a stronger position to achieve results.

Why a minimum of three women? According to a 2006 study, three is a good number to enhance governance on corporate boards.

Having just one woman serve on the board could be taken as tokenism, the study found. Two would be better, but the women would still find their influence on the board limited due to their gender.

“You can definitely sense a diversity of thought, perspective, and experience with three people,” Nancy Sims, president and CEO of the Robert Toigo Foundation, told aiCIO. The organization works to promote women and minorities in finance. “The number becomes a benchmark to grow from as appropriate opportunities arise.”

The pension fund maintains a good level of diversity on their board, Kozun said. Since its inception in 1991, Ontario Teachers’ has almost always had three to four female directors. Today, four of nine directors are women and Eileen Mercier has served as Chair for the past six years.

In addition to the minimum quota, Kozun said OSC should incorporate sanctions for non-compliance: a threat of delisting companies from TSX. However, the proposal will also include a “phase-in period” up to 2020 for companies to comfortably transition with few disruptions to their governance.

The plan also encourages company boards to enhance their transparency and diligence during the director recruitment process.

Among women, Sims said, “The talent is there. Taking on opportunities to diversify is a deliberate and conscious effort. It takes true commitment to achieve diversity within corporate governance.”

Ontario Teachers’ full letter can be found here.

A study found hybrid retirement plans could provide adequate benefits to participants (if they tripled their savings rate) and reduce costs and risks for plan sponsors.

(October 9, 2013) — The success of future American pensions could reside in “hybrid” retirement plans, according to research by the Global Wealth Allocation (GWA).

Hybrid plans enter the pension scene at an interesting time, as employers have shifted from defined benefit (DB) plans to defined contribution (DC) plans. Their goal is to provide sufficient benefits without sponsors’ bearing the risk of salary-linked lifetime pension.

The move, which gives plan participants control over their own investment management, is bad news for most Americans, GWA said. They aren’t saving nearly enough for a comfortable retirement and fear another market crash. Also, today’s low bond yields could result in lower than expected returns.

The research stated that hybrid plans could be an answer to the big pension question.

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Legally defined as modified DB plans, hybrid plans incorporate key features of both DB and DC plans: transparency, portability, professional asset management, controlled expenses, and lifetime income benefits.

GWA said while hybrid plans are clearly superior to DC plans, it is unclear whether they are better than DB plans.

Retirement benefits from hybrid plans are based on investments’ performance, the paper said. This also puts all or part of the investment risk to the participants, raising the question of whether hybrid plans could be a viable substitute for DB plans.

The research concluded that they could be, but only if contribution levels exceeded 15% of annual income for a “middle income” worker.

According to the paper, the median annual contribution of DC participants is around 5%.

One hybrid plan in place, the cash balance plan, grow benefits based on a specified annual formula and hold over $900 billion of assets, according to GWA. Another plan, the adjustable plan, provides a “floor level” benefit that increases over time as assets outperform liability funding rates.

Hybrid plans are good news for plan sponsors, the study says. By cutting costs to a sustainable and tolerable level, plan sponsors could focus on providing basic benefits and pinpointing long-term wealth generation opportunities.