Beatrix Dart is a professor of strategic management and the executive director of the Initiative for Women in Business at the Rotman School of Management. Ekta Mendhi is senior director of corporate strategy at CIBC. She serves as the co-chair of Women in Capital Markets' Women in Leadership Network. They co-founded and co-chair the Canadian Gender and Good Governance Alliance.
Board composition and gender diversity are on the radars of most CEOs and board chairs today. At the end of 2017, only two of the S&P/TSX 60 companies had no women on their boards, and almost half of the companies report they have specific gender-diversity targets in place. However, that picture changes dramatically when we look at all of the more than 1,400 companies listed on the Toronto Stock Exchange (about 65 per cent of these have a market cap of less than $1-billion). Here, women hold only 14 per cent of board seats, and 39 per cent of issuers have not a single woman on their board.
New research regularly reaffirms the business case. For companies who want to take action, the Canadian Gender and Good Governance Alliance has curated practical tools that can help organizations of all sizes achieve gender diversity on their boards.
1. Conduct a regular formal board evaluation: Formal board evaluation processes – ideally administered by an independent governance committee or an unbiased board chair – are an effective way to optimize board renewal and encourage diversity. Board evaluations provide an opportunity to assess the board's approach to gender diversity and identify improvements that need to be made. For example: Are diversity objectives clearly stated? Which processes are in place to achieve the targets? And does our board director nomination process identify high-quality women with the skill set and cultural fit that we need to be effective as a team?
2. Use a board competency matrix: Skills or competency matrices have been in use for many years but have not significantly led to an increase in the number of women on boards. Part of the problem is that the skills prioritized by nominating committees often have a built-in focus on positions. For example, public issuers often seek board members who have experience as the chief executive officer of another public issuer. Given that the proportion of women CEOs in TSX-listed companies has stagnated at approximately 5 per cent for the last decade, this criterion narrows down the pool of female candidates dramatically. Interestingly, many boards indicate that the characteristics that make their directors effective in the boardroom have little to do with these typical résumé markers. Instead, they indicate that success as a board director rests more with attributes and behaviour, such as being a great consensus builder, or asking the tough questions when necessary.
3. Set term and/or age limits: A disciplined approach to board renewal remains the most fundamental condition for refreshing board composition and creating an opportunity to increase the number of women on boards. Without vacancies, adding women is difficult. Term limits are often considered a leading governance practice based in part on the view that after a certain period of time directors risk losing their independence from management. Age limits in Canada typically range between 72 and 75 years. Both types of limits force boards to prepare for turnover in a planned and meaningful way.
4. Adopt a gender diversity policy: Regulators now require publicly traded non-venture issuers to disclose whether they have a gender diversity policy. Large institutional investors are considering gender diversity an important corporate responsibility factor when evaluating a potential investment opportunity. Responsible investment policies are increasingly adding gender diversity as a key criterion in decision-making, and public companies with all-male boards have been increasingly challenged at shareholder meetings. While only 35 per cent of issuers have a gender diversity policy, those that did had almost twice as many women (19 per cent) on their boards compared to 10 per cent average female representation without a policy. You can find a customizable policy template as part of the Director's Playbook at www.cggga.ca.
5. Expand the scope of your candidate search: The question "where can I find the female board members I would like to bring to our organization?" seems to be one of the bigger hurdles. There is a tendency to identify candidates from familiar networks such as former colleagues. However, this often leads to a narrow and homogeneous candidate pool in both skills and gender. There are ways to broaden the search and use a network approach to identify the best women candidates.
6. Leverage board-ready lists: Look to organizations such as the Institute for Corporate Directors, Catalyst, and Women in Capital Markets that have lists of highly qualified and accredited board candidates from across a wide variety of industries and leadership roles, who have declared an interest in serving on boards.
7. Engage a search firm: Look for search firms that demonstrate success in identifying and engaging outstanding women candidates to boards in your industry. Probe for examples of where search firms have been successful in both identifying and, more importantly, securing high-quality women candidates for their client boards. Be sure to ask the search firm about how they cultivate their own evergreen list of up-and-coming female board talent.
8. Maintain an evergreen list of candidates: When a board only seeks potential nominees at the time of a planned vacancy, it risks being ill-prepared for an unexpected turnover. Rushing to fill an unplanned vacancy creates an increased risk of not being able to find the ideal candidate. We recommend maintaining a roster of potential board nominees who have been identified because they possess the skills, character and demographic characteristics the board needs at a given point in time or anticipates needing in the future.
We believe that organizations experience the greatest benefits of diversity when they have between 40 per cent and 60 per cent female representation at all levels, and this is true of corporate boards as well. It is good for all of us when corporate Canada represents the best of us.
Executives, employees, educators and human resources experts contribute to the ongoing Leadership Lab series.