Diversity on Corporate Boards: Board Challenge or Social Challenge?

Diversity of corporate directors is arguably the hardest challenge in the realm of corporate governance. It’s hard because what constitutes diversity in the relevant sense is controversial. It’s hard because it’s not always easy to find directors who both possess the right talents and experience and who come from a range of demographic groups. And it’s hard because, well, old habits (not to mention old biases and vested interests) die hard.

Financial Post Magazine recently ran this editorial by Pamela Jeffrey, president of the Canadian Board Diversity Council: A call to action

…the Canadian Board Diversity Council in partnership with KPMG published the first-ever baseline study of corporate board diversity. The results were disappointing: 15% of board seats are held by women; 5.3% by visible minorities; 2.9% by persons with disabilities; and 8% by Aboriginals including First Nations, Inuit and Métis. In spite of these results, the council does not support the introduction of quotas in Canada. We support a made-in-Canada approach: collaboration with FP500 directors, our growing group of member companies, governments, academic institutions, aspiring directors, individual shareholders and institutional investors to speed up the pace of change….

A couple of points to make here. First, It is interesting to note that, statistically, Aboriginals are actually OVERrepresented on Canadian boards (8% of directors, but only 3 or 4% of population). So it’s odd to include them in the “disappointing” results that Jeffrey cites. But I’ll return to those stats later.

Second, it is important not to confuse what is true of boards collectively with what is true of individual boards. It would be good if there were a lot more women on boards, for example. But from that it doesn’t immediately follow that there should be a lot more women on any particular board.

There are a couple possible reasons why an individual board should aim at including more women. One is the idea that diversity makes for better decision-making. There’s a fair bit of consensus on that point, though there’s disagreement on what kind of diversity matters most.

A second is the idea that having more women on your board will help to motivate and inspire women within your firm in various ways, and show them that you value them too.

A third is the idea that, as a society, we should give women a bigger role in corporate decision-making and so we need to do more to open doors that were previously stubbornly held shut. But in that regard, the question remains as to what obligation particular boards have to help achieve that social objective. A societal goal is not automatically a board obligation, especially given the special role-related responsibilities that boards have to the organizations they oversee. So the extent of such an obligation is a hard moral problem.

Now putting more women on the board might be thought of as part of a company’s “social” or “citizenship” obligations (as opposed to an obligation owed to the handful of women who would benefit directly from membership on that particular board). But even then, you have to consider the extent to which a given board’s actions can have an impact. Even if your board is 50% or even 90% women, that doesn’t fix the social problem.

But then, it also cuts the other way: the fact that Aboriginals are seemingly well-represented on Canadian corporate boards “in general” is no reason for any particular board to be complacent about that issue. There may well be more your board can do, and should do, in that regard.

2 comments so far

  1. Tom Herrnstein on

    Thanks for the piece. Could you list a go-to study that argues that diversity on a board makes for better decision making? This sounds intuitively right, but I would like to see what the people who study this subject write about it.

    • Chris MacDonald on

      Tom:

      I don’t have a real go-to study to recommend. There are a couple of problems with establishing the claim that diversity makes for better decision-making. One is that the notion that diversity leads to better decision-making is hard to validate, because what counts as “better decision-making” is hard to pin down. The second problem is that, although I’ve heard quite a few directors agree that “diversity” is good on a board, they’re not always in agreement about what *constitutes* diversity. There’s more agreement, I think, that diversity of *opinion* matters than there is that diversity of gender, skin colour, etc. matters, though there may of course be a good deal of correlation between opinion & other variables.

      Here’s one brief article, by Richard Leblanc, that you may find useful:
      A Fact-Based Approach to Boardroom Diversity (PDF)

      Chris.


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