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Tag: Boards

Diversity equals profitability

Shareholders! Are too many male Canadian board members costing you money?

This post is co-authored with Normand Coté.

Is the homogeneity of Canadian corporate boards costing shareholders money?

On September 28 the Canadian Securities Administrators (CSA) issued a report indicating that women board membership on TSX listed companies had increase by 1% from last year to 12% in 2016.

That’s pretty underwhelming, but unfortunately not surprising. For over 25 years there’s been talk about women advancing into senior executive and board roles, but it’s largely talk. There appears to be a self-fulfilling prophesy that ensures women of skill, ability and endurance are held back.

“Again this year, the most common explanation given by issuers that do not consider the representation of women in executive officer appointments was that their selection is based on merit.” (p 8)

Selection based on merit seems to be a stumbling block for corporations. Women are being left out of consideration for high potential development and succession planning. In our experience they are under-represented in the selection process and consequently corporate Canada isn’t growing enough women leaders. This behaviour extends to other under-represented groups as well.

There’s enough research indicating that boards offering diversity, and by this we mean broader perspectives, innovative approaches and richer discussion, result in better financial performance. While boards are conservative by design these short-sited hiring and development practices can no longer be considered a viable pretext for the status quo. So why is corporate Canada short-changing itself and its investors? Is it possible that the biases which excluded women from becoming magistrates and senators found a cozy home in Canada’s boardrooms?

The key to overcoming this limitation is to confront the biases and the egos maintaining the status quo. Begin by acknowledging that they exist: in the corporate environment, in the boardroom and in the board members themselves. Diversity in the leadership and succession planning pipelines needs to be tied not only to the “merit” boards say they are seeking, but also in seeing the “people potential” within their organizations. Tools and external objectivity provide meaningful interventions that focus on clear data and rational decision-making – in other words they eliminate the unconscious biases that the people involved in the selection process poses. For example, external consultants who understand board and industry contexts can ask tough questions designed to illuminate how members think about key issues such as merit. They can also help to establish clear criteria for sourcing candidates based on merit and diversity. Rigorous psychometric assessments target behavioural traits that mitigate stereotypes formed over a life-time of professionally biased leadership perceptions.

The key function of a board member is to balance stewardship safeguarding the prosperity of the company with shareholder interests. This job cannot be done effectively if existing board members are afraid of working with and for women.

Diversity on Corporate Boards

Board diversity: Why what you see is what you get

Do you want the best person for the job? Perhaps subconsciously what you really want is the person who makes you feel the best about yourself, someone who reflects well on you. The type of person who will reinforce what success looks like, sounds like and most importantly, manages like. Since you are successful and you are in the hiring seat, this person will look a lot like you. Welcome to the very special tribe called Status Quo.

According to a recent article in Canadian Business, there continue to be too many corporate boards that have diversity issues. This is puzzling as there seem to be a number of reports that show board diversity has a direct impact on profitability:

Don’t corporations exist for the pure economic purpose of making money? Don’t they want to be more profitable? Or perhaps the better to ask is what these boards and their members have to lose? No matter how flat corporations become, they’re still hierarchical. Hierarchies allow some people to engage in assigning relative values to others based on perceived status and power. When you derive your self-worth from your corporate status then you’ve fixed the ‘ideal candidate’ for similar roles very narrowly.

In cases where board members are blind to how their power and influence place limitations on hiring and consequently profit-making abilities, corrective action in recruitment practices might be the key. According to Stefanie Johnson, David Hekman and Elsa Chan if there’s only one woman in your candidate pool, there’s statistically no chance she’ll be hired! Apparently when “one thing is not like the others” it signals that you’re different from the norm, that you’re different from the tribe. Instead the board needs a new norm, one in which a different candidate cannot be discriminated against so easily. This quick video explains how inclusive hiring can be facilitated:

So what do the boards of companies in which you hold shares look like, sound like, and manage like? Is there room for more diversity and consequently more profit?