In the booming 1990s, when the stock market climbed higher by the day, there was little criticism of the way companies were managed. Yes, boards of directors were clubby, and dominated by older white men. But the market was hot, and share prices buoyant.
The crash of the early 2000s – and the implosion of the accounting fraud at Enron – sparked change. The failure of some big boards in their oversight role reverberated through society, from vaporized savings to lost jobs.
In mid-2002, the United States Congress passed new corporate governance rules. That same year, The Globe and Mail’s Report on Business undertook its first comprehensive review of the boards that oversee Canada’s large public companies, Board Games. That first investigation found most firms would not have met the new U.S. standards for independence of directors, a key element of effective oversight.
The latest instalment of Board Games, now in its 21st year, landed this week. Two decades ago, the focus was the pillars of corporate governance, such as board independence. There has been much improvement on that front. A decade ago, the absence of women on boards was a leading issue. One headline read: “Glacial progress of women on Canada’s boards prompts calls for reform.” There have since been solid gains, although more needs to be done to achieve a better balance.
Now, a broader question of diversity, from people of colour to Indigenous people, is at the fore. Problems of inadequate diversity matter because boards of directors with a variety of voices and experience make for stronger companies.
The near total absence of Indigenous people on boards is an especially pressing problem. Think of the Crown’s legal duty to consult and accommodate Indigenous groups, work carried out in large part by companies as projects are proposed for development. Picture a resource company aiming to build a major product that needs local Indigenous backing. A lack of Indigenous voices on a board hurts a company. Insular companies are weaker than they need to be.
Diversity isn’t just marketing fodder. Research consistently indicates corporate diversity has a tangible impact. The consultancy McKinsey has calculated that Canada could add a cumulative $150-billion to the country’s economy over a decade – a GDP boost of 0.6 per cent annually – if there were gender equality in the workplace, starting at the top.
In Board Games’ assessment of diversity beyond gender, companies could get full marks if they had more than one director who is Indigenous, a person of colour, has a disability or is LGBTQ+ and made specific disclosures. And yet many still fell short. Of the 100 companies with the highest Board Games total scores, about two-thirds did not get top marks on diversity beyond gender. About the same proportion don’t have plans such as a diversity policy.
Available data show Indigenous representation is, especially, unacceptably low. Publicly traded companies operating under federal law have had to disclose diversity on their boards since 2020. It covers only a portion of Canada’s leading names but the results are clear: among 269 companies, there are just 17 directors who are Indigenous, according to an annual diversity report in October by the law firm Osler.
The good news, such as it is: The 17 is up from seven in 2020. The reality is the 17 are 0.9 per cent of all directors on those boards – while Indigenous people comprise 5 per cent of Canada’s population. Osler found similar underrepresentation of people of colour and people with disabilities.
The gains of women underline that the status quo can change quickly. In the early 2000s, when Board Games started, and even a decade ago, almost half of S&P/TSX index companies had no women on their board at all, and barely any had at least one-third women. In 2014, disclosure rules on gender were introduced. Today, one-third of all directors at S&P/TSX index companies are women, and for the first time all index companies have at least one woman on their board.
The important lesson is that transparency, and a road map, foster change. Disclosure and detailed plans to improve are essential. There has been corporate resistance to legislated quotas, but companies doing best are those that have set specific targets, and back those up with action such as mentoring and focused recruiting.
Corporate board meetings happen behind closed doors, but what’s said once those doors close has wider resonance. A greater range of voices will lead to smarter decision-making – and higher profits.