2020 may have been a difficult year, but two of its more positive themes have been transformative change and corporate transparency. These two trends are likely to continue as undercurrents into 2021. Improving overall diversity on boards will be a central priority for Canadian boards next year. Employees, investors, and most other stakeholders in a corporation agree that progress can only be made through change and that change can only be brought about by a diverse board that can stand up to full transparency – both internally and publicly.
Getting into the boardroom has traditionally been difficult for people of colour and women. The founder of Kingsdale Advisors, Wes Hall, started his own company because he was consistently passed over for board and other executive roles. Anita Anand, currently Minister of Public Services and Procurement for the federal government, had issues getting onto the board of a corporation despite four university degrees, nonprofit board experience, and is one of Canada’s leading experts on corporate governance.
Intersectionality between investors and other stakeholders driving board diversity
There are several factors that are making it easier for experts like Hall and Anand to become directors. The first is the bottom-line factor of institutional investors who pay attention to board diversity as part of their investing strategy – mostly because the diversity of a board has been effectively shown in many studies to be tied to better corporate governance which drives profits. The second, which has become of greater importance in 2020, is the collective need to reduce – and hopefully, eliminate – systemic racism at all levels of society.
McKinsey & Company, a global legal advisory firm based in the United Kingdom, has taken the concept of diversity even further beyond the “usual” race and gender diversity policies by recruiting people from less privileged backgrounds. They also have reached out to people to fill roles on key committees and within the firm who have different skill sets than simply legal ones – surgeons, technologists, and others. Unique viewpoints come from diverse skill sets and differing backgrounds, and this is something this firm has acknowledged and incorporated into its human resources and governance policies.
Initiatives to improve boardroom diversity in Canada
Women directors are becoming more prevalent, as evidenced by Osler’s newly released 2020 Diversity Disclosure Practices report. While this in no way means that efforts to appoint women to boards should not continue with their current momentum, the next diversity goal to be reached is to appoint more people of colour and people with disabilities to director positions. Currently, the following statistics apply for companies governed under the Canada Business Corporations Act (CBCA):
- Only four companies have diversity targets beyond appointing women
- Only seven Aboriginal directors are currently serving on CBCA boards
- The percentage of board seats held by people of colour is only 5.5%
In June 2020, inspired by the murder of George Floyd, Wes Hall launched the BlackNorth initiative to address the issue of lack of diversity in Canadian companies at both the board and management levels. Over 200 companies, including some of Canada’s largest, have signed on to support the initiative. Its goal is to have 3.5% of executive and director roles filled by Black leaders by 2025, using the same collective effort and will that has been harnessed to fight COVID-19.
Brenda LaRose is the Partner and Head of National Diversity of Indigenous Board Practice for Leaders International Executive Search. Putting Indigenous people in leadership roles, according to LaRose, is not a question of merit. She has numerous professionals in her database with multiple degrees and other qualifications. “There’s no excuse for not having Indigenous people on boards anymore – we’re more than qualified.”
Diversity disclosure driving change now and into the future
Mandatory diversity disclosure has helped to drive some of this change and hopefully will encourage more in the future. As of January 1, 2020, all corporations incorporated under the CBCA have been required to disclose diversity policies and practices in regard to executive-level management and the board of directors. Major banks, which are traditionally not governed under the CBCA, are in the federal government’s sights for the same diversity disclosure requirements in the near future.
This disclosure forces a company to get such policies and procedures off the ground if they were not in place already and gives investors yet another data point with which to analyze the company. It is the rare business that will not want to provide information to investors that its competitors are providing. And, as we’ve seen in the world of Environment, Social, & Governance (ES&G) investing, this is information that investors – especially institutional investors – are looking for.
That’s not to say that companies shouldn’t consider being more inclusive because it’s the right thing to do, but boards do serve the interests of stakeholders which include investors. Investors have shown time and again in the past five years that they are specifically looking for broad-based diversity which is inclusive of people of colour, women, and other backgrounds that are not part of the “old boys club”.
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