News and Views
October 25, 2023
Posted in: WATSON Views
Earlier this year, Innovation, Science and Economic Development Canada (ISED) released their 2022 annual report on the Diversity of Boards of Directors and Senior Management of Federal Distributing Corporations. One of the striking observations from the report was that 1 in 5 boards don’t consider the level of representation of designated groups on their board. When asked why, two of the most common responses were: “It prevents the selection of the most qualified candidates” and “It is not in the best interest of the corporation or shareholders”.
Corporate Canada, we can do better.
There is a large and continually growing body of evidence showing diversity correlates with improved outcomes, including higher stock returns, decreased turnover, increased reputation, and higher innovation levels. We’ve seen it ourselves, repeatedly, across the 500+ boards and thousands of directors we’ve worked with across Canada. A diverse and inclusive boardroom generates positive friction and encourages directors to challenge assumptions, leading to healthier discussions that consider a broader range of perspectives and solutions. The result: better outcomes and more resilient organizations.
Boards today are tackling increasingly high-stakes issues and material decisions on behalf of their stakeholders to shape a stronger future for their organizations. Those organizations deserve the advantages that come from a diverse and inclusive board.
So let’s do better because our boards will be better for it. We know implementing the changes that support diversity and inclusion remains a common challenge for many boards, but don’t let that become a barrier to improvement. Consider this practical advice from our own experience helping boards navigate these changes:
- Invest in education. Directors often have differing opinions on what diversity means and looks like in practice. Creating a shared understanding can clarify assumptions and bring perspectives much closer together, creating better alignment on the path forward.
- Use the organization’s existing context. Boards today need to consider a greater breadth of stakeholders than ever before. When considering the board’s own diversity, a helpful place to start is the organization’s stakeholder groups. The composition of an organization’s workforce, for example, offers a meaningful point of reference on the diversity of perspectives that need to be considered in the board’s discussions and decision-making processes. A board’s approach to diversity shouldn’t be one-size-fits-all; leveraging the context that the organization operates in will create a better business case for improving the diversity of its directors.
- Make it a policy. Of the boards that disclosed they do consider the level of representation on their board (about two-thirds, according to the same 2022 ISED report), only 1 in 3 have adopted a written policy on the identification and nomination of designated groups. Why does having a policy matter? It signifies a plan from the board to take action. More importantly, not having one raises legitimate questions about the board’s level of commitment and alignment on how it intends to improve.
- Don’t shy away from tough conversations. With a plan to improve diversity outcomes, it is inevitable that difficult conversations impacting existing directors will need to happen. It’s common for boards to rely on term renewal limits to drive composition changes, and while these mechanisms may help evolve composition over time, the reality is that board composition should reflect the needs of the organization as it is now, irrespective of term limits. That means tough conversations may need to happen today to help the organization thrive in the future. But hey, that’s what the board is there for, right?