Susan McArthur is managing partner of GreenSoil Investments and a corporate director.
The mandate of the Canadian Board Diversity Council is to improve diversity on corporate boards. Every year, the CBDC circulates a survey to measure the makeup of Canadian board memberships. The data are compiled into an annual report card that highlights statistics on diversity.
Diversity has become an omnibus, catch-all term to describe women, minorities, aboriginal people, the LGBT community, people with disabilities. In other words, CBDC utilizes external markers to measure "diversity." The premise is that because these groups have a variety of skin colours, sexualities and genders, they will bring different perspectives to the table. So a board with a good sprinkling of people who look different from each other, but may have the same mindsets or personality types, will pass CBDC's tests.
There are numerous studies highlighting that in business, diverse cultures improve returns. A 2011 study by Catalyst measuring return of invested capital found that boards with the most female directors outperformed those with the least by a whopping 26 per cent. Equally important – but more difficult to measure, and therefore less documented – is diversity of thought around the boardroom table, regardless of skin colour, gender or sexual orientation.
A flip through the CBDC's 2016 survey underscores the static nature of these types of initiatives. The survey takes a snapshot of what Canadian boards look like today: Are you a woman? Aboriginal? Disabled? LGBT? How old are you? What are your recruiting intentions when it comes to diversity for your board? Do you care about diversity? Unfortunately, there are few questions about criteria used for selecting board members on bases other than the external diversity markers. But when companies expand the basic criteria that define a good board member, diverse thought and a broad range of perspectives are brought to the table.
Most boards do an annual self-evaluation that identifies and rates board members' skill sets. The exercise is meant to identify weaknesses within the board fabric and orient recruiting and succession planning. Certain companies disclose their director skill sets in their public documents. The convention is for a board's nominating and governance committee to establish these recruiting metrics and criteria. Depending on the requirements, a search firm might be part of the recruiting process.
Given the inherently conservative nature of most boards, it shouldn't be surprising that the most sought-after experience usually falls into the following categories: prior board experience, accounting or audit committee expertise, Bay Street executive experience, human resources or talent management experience, specific industry experience, legal expertise or – the holy grail – C-suite experience. Most often, seniority across all categories is required.
While there can be outliers, these criteria typically generate a pool of individuals with similar life experiences, and a smaller pool of candidates who are nominally diverse.
The seniority factor can seriously skew such talent pools. In the United States, the Public Company Accounting Oversight Board reports that while women have represented 50 per cent of new chartered professional accountants for two decades, they have also accounted for just 19 per cent of partners in U.S. accounting firms. Because boards typically want senior representatives, they are fishing in a pool that is only 20-per-cent diverse instead of equal. Adding younger board members to the mix, especially given the rate of technological change in today's business world, is critical.
The time required to sit on boards also contributes to restrictions on the pool of potential candidates. Few corporations allow up-and-coming executives to sit on outside boards; they want their teams to stay focused on the business at hand. But this is shortsighted. The experience and exposure that high-potential executives get by sitting on outside boards can provide valuable corporate training and expand an individual's reach, knowledge base and perspective. This benefits the executive's company – and it adds to the depth of the board talent pool.
One of the best recent examples of a creative board choice is Julie Payette, who sits on the board of the National Bank. Ms. Payette is an astronaut. She is an engineer who has flown two space-shuttle missions and was chief astronaut for the Canadian Space Agency. She had no financial industry experience and no accounting degree, law degree or MBA – not your typical bank board director. But the leadership, intellectual discipline and rigour required of an astronaut provides a perspective that ought to be of interest in any boardroom conversation.
In order to improve the diversity of thinking around the boardroom table, we have to shake up conventional wisdom on what makes a good board member. We need to draw from a wider talent pool. Some boards, frustrated by the lack of diversity in traditional pools, have already begun to seek outside-the-box candidates. There are valuable perspectives on strategy, risk, problem-solving, leadership and other board issues to be gained from many corners: academia, the military, community leadership, public service, entrepreneurship. And, in an economy that is disrupted by new technologies every day, millennials.
By truly expanding the basic talent pool of potential directors, not only will the CBDC's objectives on diversity be accelerated, but the corporate governance and the performance and returns of the companies they govern will be elevated.