When It Comes to Boards, Canada Gets an F in Diversity

Richard Leblanc, Canadian Business, December 2, 2011

The U.S., U.K., Belgium, France, Germany, Italy, Spain, the Netherlands, Australia, New Zealand, Norway and Sweden either have changed or are changing laws to promote greater gender and ethnic diversity on boards of directors, a shift largely spurred by the financial crisis.

Diversifying corporate boards has been described as the number one issue in corporate governance. The movement is so broad that, in New Zealand, it’s coined the global governance “tsunami.” Governments are now very serious about who is sitting in boardrooms and ensuring that boards are no longer asleep at the switch.

But where is Canada in addressing board diversity? The 2005 corporate governance guidelines–which are now out of date–do not address boardroom diversity. Political leadership, with the exception of Quebec, has been absent.

So why is boardroom diversity so important? Because it leads to better decision-making, which is what boards are all about. Women and directors from different cultural and ethnic backgrounds are less socially embedded than a homogenous group–a “closed shop,” as it was described in the U.K. last week–and are more apt to challenge, monitor and control management. The U.K. prime minister has said that increasing women on boards would help to drive down an astonishing 49% increase in directors’ pay. Institutional shareholders are now talking about voting “no” to nominating committee directors whose boards lack female representation.

Boards will not diversify on their own. There is entrenched self-interest to maintain the status quo. The status quo is to accord primacy to fellow CEOs (who are almost always male). Yet there appears to be scant evidence that CEOs make for more effective directors. Indeed, the evidence appears to suggest the opposite. Second, long-serving directors (who are also usually male) do not stand down, thus blocking renewal and diversification. In the U.K., any FTSE director serving beyond nine years is presumed to no longer be independent–another decision that followed the financial crisis. Canada has a significant number of male directors who exceed this limit, some having served 15 to 25 years on a board. In addition, shareholders do not have “proxy access” (yet), meaning that the board and management largely selects itself, rather than being selected by shareholders. In short, the deck is stacked against diversification.

The figures bear this out. Depending on the survey, women have been stagnant at 9% to 14% for the last 10 or more years. The figures for minority directors are much worse, at 3% to 4% (if we’re being generous). This is a global talent and competitiveness issue for companies and countries.

So then, what is needed to prompt greater boardroom diversity? In a few words: political attention and leadership. A Canadian case in point: Quebec Premiere John Charest announced in 2007 that all Quebec boards of directors are to achieve gender parity by December 2011 (this month)–meaning equal numbers of men and women. In addition, Quebec company boards are to match the cultural makeup of the province and its various components. And all director appointments are to be based on skills and experience profiles.

Governments prompt diversity in four ways:

1. The first way is to do nothing and hope for the best, which is where Canada (but not Quebec) currently sits.

2. The second way–exemplified by the U.S.–is to mandate that all listed companies must disclose diversity plans for boards and senior management, but then not define diversity. The advantage of this is disclosure of a plan. The disadvantage is that lawyers define diversity downward to include diversity of “perspective” or “background,” whereby a non-diverse board could actually claim to be “diverse,” thereby obviating the intent to achieve gender and ethnic diversity.

3. The third way–exemplified by Australia–is for the regulator to define diversity and require progress disclosure by companies in setting and achieving their own objectives based on the definition. For example, Australia defines diversity as relating to “gender, age, ethnicity and cultural background.” The figures for these groups have been steadily increasing ever since.

4. The fourth approach–exemplified by Quebec and Norway–is full-fledged quotas: 40% women in Norway and 50% women plus cultural matching in Quebec. This obviously is the biggest stick a government can wield, and there are advantages clearly in the certainty of achieving imposed targets, without gaming definitions or feet dragging.

The best, most flexible approach is a variant of #3, which is to define diversity–as a guideline or principle–and then hold companies responsible for achieving their own objectives and practices, through a comply or explain approach.

What is not acceptable is to do nothing, especially when the rest of the world is passing Canada by. The right directors can make or break a board. It’s time now not only for companies, but also for governments (and in particular Prime Minister Stephen Harper), to focus on this issue.

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  • Anonymous

    Diversity is not naked discrimination against whites, no, it’s a commitment to excellence. This isn’t the government or a private company saying this here, it’s the news media.

  • Question Diversity

    So why is boardroom diversity so important? Because it leads to better decision-making, which is what boards are all about.

    Primary data sets, please?

    If not that, any sort of evidence, please? I’d settle for an informal rationale why, as long as the explanation doesn’t devolve into banalities such as “black and white keys on a piano.”

  • Anonymous

    Because of this diversity Europe and the U.S.A. are in such a economic mess.

    Diversity our strength and here comes third world conditions for everyone.

  • Anonymous

    “the rest of the world is passing Canada by”

    This is the unsubstantiated argument for quotas. No proof needed, just keep repeating.

    By the time people realize enforced multiculturalism is a detriment, it’ll be too entrenched to reverse course.

    This is coming from a business magazine for elites. The practice of elite investors: cause chaos, profit from it, and keep stirring the pot.

  • TomSwift

    If diversity was really an advantage corporations would voluntarily do it to increase profit margins.

  • Rhialto

    For a business magazine (I know it’s Canadian) to spew out this liberal idiocy, is disgusting. This is a matter of rationality, not ideology.

    In an economic system that is capitalist, or a reasonable approximation, the board of directors of a publicly held company is charged with representing the company’s stockholders: the company’s stockholder’s, not the public, not any governments, not the moral leaders. Boards of directors do not make day to day decisions on company operation. Rather they make sure the company operates to promote the owners’ wealth. This is the driving force of capitalism.

    Do the liberals understand this? Do they care? Or do the liberals take the same attitude toward the economy that they take toward schools? The liberal attitude is: If it feels good, do it.

    Note that the regulations governments should impose on the company to promote worker safety, social justice, or environmental protection are separate issues, as are other governmental actions to adjust the economy.

  • madsion grant

    An F in diversity means an A in intelligence.

    While Canada did suffer from the global recession of ’08 they bounced back quicker than the other, more racially diverse Western nations.

  • AO

    Governments have no business telling corporations what the ethnic make-up of their Boards should be. Corporations generally have a lot of influence. If they weren’t so concerned about PR they would fight this kind of nonsense. Not on the basis that they want to keep non-whites out but rather on the basis that they should be able to determine themselves who is best suited for the position.

  • Anonymous

    #4 wrote: “This is coming from a business magazine for elites. The practice of elite investors: cause chaos, profit from it, and keep stirring the pot”.

    Maybe, but I doubt that Canadian Business is party to any conspiracy. #4 underestimates the power of sheer conformity; in liberal society, where all the elites (in journalism as well as business) pass through the same universities — which are essentially leftist-occupied territory — they come out brainwashed, pretty much. You don’t need a conspiracy where you have a reigning orthodoxy, or as the British/Canadian journalist Barbara Amiel once put it, it’s worse than a conspiracy, it’s a syndrome. It’s not even necessary to believe in the orthodoxy; it’s enough to think that most successful people do, and that success follows from adopting or parrotting their world-view.

  • Anonymous

    The article was posted to the magazine’s Facebook page at the URL /canadianbusinessmagazine shortened at the URL below:

    http://goo.gl/91pyt

    It is refreshing to note that AmRen gets far more daily visitors than their Facebook page. And it should be no wonder with articles like this espoused as truth that the MSM is dying.

  • Jim

    Where are the examples of where diversity actually improved a company’s bottom line? Diversity improves nothing.The left cannot explain diversity beyond race, if you ask for more in-depth analysis they can only blubber jibberish about fairness.

  • sbuffalonative

    This is pure and simple anti-white bigotry. These boards are overwhelmingly populated with white men and must be targeted for diversification. This process is systematic and will result, literally, in turning Western Civilization into a Third World garbage heap. Oh, but it is “progress”. Well, I don’t know many whites who welcome such “progress.”

  • Tab Numlock

    I guess white males are just incompetent.

    BTW, East Asian companies seem to be doing quite well. I’m assuming their boards have nearly zero diversity.

  • Anonymous

    “the rest of the world is passing Canada by”

    No, actually, the rest of the world is MOVING to Canada. Since the liberalization of immigration laws in 1965 (following US example of same year), much of the world has ALREADY moved to Canada.

    What’s more, in spite of this Third World invasion, Canada is still doing pretty well. To claim that “the rest of the world is passing by” one of the richest and most peaceful nations on earth is absurd.

    Yes, the boardrooms of Toronto and Montreal are still overwhelmingly white and male. So what? It’s been a successful strategy, so don’t strangle the golden goose, or whatever the appropriate cliche is.

    The Canadian executive class in general has been overwhelmingly white and male since the nation began. Melanin-deprived xy-chromosomers were the captains of industry that took a sparsely-populated freezing forest and turned it one of the planet’s top financial and social success stories. They made it the magnet for the wretched billions in less-successful countries who now demand entry in the name of their “human rights,” in the name of “fairness,” and in the name of “diversity.” It’s not enough that they demand access to our borders; now apparently they feel entitled to a representative percentage of the highest level of upper-management positions.

    If Canadian Business magazine wants to convince me that Iraqis from the desert who’ve never seen a tree before should be managing Canada’s pulp and paper industry, or that hiring a Jamaican CEO will somehow help Ski-Doo sell more snowmobiles, they’re going to have to provide a hell of a lot more proof than this article’s parade of vapid platitudes and ethnomasochistic GoodThink.

  • Anonymous

    “While Canada did suffer from the global recession of ‘08 they bounced back quicker than the other, more racially diverse Western nations”

    That is because Canada has strong banking regulations. Unlike here in the US our good old corrupt politicians gutted all of our banking regulations in the 1990’s. Despite the Rush Limbaugh types here in the U.S screaming about Canadian socialism, it is in the uncontrolled Capitalist system in the USA that the economy is falling like a rock.

  • Question Diversity

    15 Anonymous:

    Oh, we still have plenty of banking regulations left. It’s just that most of them read something like, “thou must hire unqualified minorities.” The most crucial regulation, Glass-Stegall, was ditched in 1999, with Bill Clinton’s signature. It was the crucial wall of separation between banking and investment. When the subprime crash hurt the banking industry, the lack of the wall meant that it easily spread to the investment houses.

  • sbuffalonative

    Many claims but no citations. “Evidence appears to suggest the opposite” without citing proof suggests no evidence to me.

    From what I understand, Canada has largely escaped the financial crisis. They seem to be doing something right. This would seem to be the real problem. Canada is proof that homogeneity in business and financial decision making shows that ‘diversity equals success’ is a bold, faced lie. We can’t let people see examples of the truth, can we?

  • Roy

    “Women and directors from different cultural and ethnic backgrounds are less socially embedded than a homogenous group …and are more apt to challenge, monitor and control management.”

    The author is saying that your ethnic background determines the way you think and make decisions. If I were to make broad generalizations about crime based on race and culture then I’d be called a racist and put in prison.

    It all begs the question – why would we want to bless these ‘male and pale’ organisations with diversity in the first place? Why not let them shrivel away and be beaten by these ‘diverse’ new market leaders instead?

  • Anonymous

    “That is because Canada has strong banking regulations. Unlike here in the US our good old corrupt politicians gutted all of our banking regulations in the 1990’s. Despite the Rush Limbaugh types here in the U.S screaming about Canadian socialism, it is in the uncontrolled Capitalist system in the USA that the economy is falling like a rock.”

    I work at a Canadian Bank and been studying the financial services industry for two years before I got my first job. It’s not as simplistic as that and you won’t get the entire story from “Inside Job”

    A lot of the issues with the United States financial system is government intervention such as the Federal Reserve controlling interest rates, the CRA, and Freddie/Fannie. In short, the US government subsidized all the risk but let the banks rum amok, creating a terrible moral hazard.

    However, Canada is only different where the government still subsidizes the risk through such programs like the CDIC, yet the banks can’t run amok due to heavy capital requirements and the overnight market.

    The problem is, this still causes problems such as the current housing problem since the government is assuming default risk similar to Freddie/Fannie. It wouldn’t surprise me to see a housing collapse in 3 or 4 years.

  • Anonymous

    “The U.S., U.K., Belgium, France, Germany, Italy, Spain, the Netherlands, Australia, New Zealand, Norway and Sweden”, all White countries. Why haven’t China and Japan, or any other non-white country discovered the benefits of board diversity?

  • Anonymous

    Posters #13 and 20 hit the nail on the head. Why do ALL non-white companies and countries get a free pass for mono-cultural organizations, but any and every white organization must experience the joys of diversity or they could fail at any moment?

  • john

    I imagine that corporate boards in Japan, Hong Kong, Taiwan, Bangkok, South Korea, and Singapore would howl with laughter if told that they should appoint a few Africans and Amer-Indians to sit on their corporate boards.

    Of course, after the hooting and shrieking died down, they’d issue a press release announcing that they “were studying ways to increase the diversity of their corporate governance.”

  • sedonaman

    I can see a need for something like this. I have a Hispanic American friend who told me that when asked why he was not going to re-up in the Army, he replied that because in the four years he was in, the mess hall did not even once serve tortillas! Someone in the mess hall “board room” should have paid attention to the only diversity that Jared Taylor says people care about: diversity of ethnic cuisine.

  • Anonymous

    “why would we want to bless these ‘male and pale’ organisations with diversity in the first place? Why not let them shrivel away and be beaten by these ‘diverse’ new market leaders instead”?

    There’s no advantage or disadvantage to a company if they all must promote diversity. They are all equally handicapped, or blessed, as the case may be. They may be at an advantage or disadvantage when competing with companies overseas.