Le billet d’aujourd’hui a trait à la problématique de la diversité au sein des conseils d’administration. Afin d’avoir une perspective globale et synthétique sur cette question, j’ai demandé à un expert canadien en gouvernance, Richard W. Leblanc, professeur associé | Law, Governance & Ethics, York University, de nous donner son point de vue sur le sujet. Ce dernier a accepté de nous livrer les recommandations qu’il a faites aux membres de la  Canadian Society of Corporate Secretaries (CSCS) – Société canadienne des secrétaires corporatifs (SCSC) lors d’un récent panel à Toronto. Le professeur Leblanc a énoncé 10 recommandations très pertinentes sur les actions à entreprendre par les responsables afin de s’assurer du bon traitement du sujet de la diversité.

Par Richard W. Leblanc, PhD, Professeur associé | Law, Governance & Ethics, York University, Invited Guest

Board Diversity and the Role of Corporate Secretaries (CSs)

1. Consider Tenure Limits on Entrenchment

Boards are a fixed size and directors are self-interested. This may promote entrenchment and limit turnover. The UK, Malaysia, Hong Kong and Singapore (and possibly India) have moved to 9-year tenure limits (10 years in India’s case). Beyond the cap, independence is questioned. CSs should track developments and educate their boards, particularly those with weighted director tenures > 10 years.

2. Draft a Diversity Policy

Many or most industrial democracies have moved to corporate board diversification, by regulatory disclosure, objectives or targets (hard and soft). Canada’s progress has been wholly inadequate, other than Quebec, which has been exemplary. CSs should participate if not lead the development of a diversity policy for their company and board, including defining diversity and setting objectives and reporting. Diversity should not be defined downward to be “perspective” or diversity of “opinion” or the like. Diversity should be defined to include, at a minimum, gender, age, ethnicity/cultural background diversity (Australia example), but tailored to Canadian circumstances.

3. Focus on Competency-Based Recruitment and Assessment

Financial regulators in Canada are taking the lead globally in requiring risk and relevant financial industry expertise (OSFI) and rigorous competency assessment of directors (DICO). 
The CSA began this in 2005. The SEC (citing my work) did so in 2009, requiring full disclosure of incumbent and prospective director qualifications. CSs should track best practices, as they will reach non-financial firms. “Competency” is broader than experience and includes SKEET (skills, knowledge, education, experience, education, training).

4. Underscore the Business Case for Diversity

Empirical evidence is mixed on the effects of women on boards upon shareholder performance (as is the case with independence); however, the evidence is greater on mitigation of groupthink and enhanced decision-making through diversification.

5. CEOs Do Not Necessarily Make Better Directors

That CEOs make better directors is unsupported by empirical evidence (see recent Stanford study), and this can lead to interlocks and reciprocity/favoritism. “CEO” is not a competency but a job title; however, “leadership” or “enterprise leadership” should be unpacked into sub-competencies, as is done by good boards. In addition, there is little if any empirical evidence that the “talent pool” in Canada is “shallow,” or that diversity candidates are less “qualified” than others. Proponents of these assertions, sometimes code for blocking diversification, should bear the burden of defining and demonstrating “qualifications” for board membership. CSs should track evidence-based governance and have an impactful role to play here.

6. Disclose Director Selection Criteria and Process

Director selection criteria and process disclosure is opaque in many instances. CSs should be aware of best practices. At a minimum, the competency matrix should be disclosed, as is best practice. All prospective directors (short listed) should be interviewed by the NGC (Nomination and Governance Committee), before ranking, to enable diverse candidates to come forward whom the board may not know, and who may not have served on a board. Most directors serve on one or possibly two boards, so first time directors are commonplace now. There should be full disclosure of the way directors are brought onto boards.

7. Facilitate Board Communications With Shareholders

Shareholder support (institutional in particular) of diversity candidates (including registers and leadership) has been inadequate in Canada compared to the US. CSs could contribute here by recommending shareholder dialogue directly with boards, and shareholder support of competency-based recruitment and diversification. Boarddiversity.ca (CBDC) is doing exemplary work here. In addition, shareholders should have proxy access.

8. Retain Independent Advisors

Advisors such as search and governance firms should have no prior dealings whatsoever with management. Management should not pre-select firms. From the candidate’s point of view, the advisor’s loyalty is to the committee. Search firms should be managed and accountable [with support of the CS to the NGC] to include competencies and behaviors of prospective directors and, in particular, validation of the foregoing. CSs have a role here to contribute, educate and facilitate.

9. Solicit Third Party Expert Board Reviews

Third party board reviews often surface directors whose contribution and competencies are no longer appropriate for the organization. Regulators in the UK and now in Canada (OSFI) are moving towards external board reviews. CSs should educate the board in this regard as well. There is an inherent conflict of interest if a self-review is conducted, especially if facilitated by the CS (e.g., part of management). Regulators are beginning to acknowledge benefits of an independent and objective facilitation.

10. Liaise with Colleagues and Promote Exemplars

Lastly, CSs should dialogue and contribute to the development of exemplary companies, individuals and best practices, as the Canadian Society of Corporate Secretaries and Corporate Secretary Magazine are doing.

* CV | Richard W. Leblanc

* Canadian Society of Corporate Secretaries (CSCS)  is widely regarded as the voice of Corporate Secretaries and other governance professionals in Canada. Every day, in corporate, government, not for profitand crown offices across the country, our members deal with disclosure, board of directors administration and their associated committees, matters of corporate governance, proxy processes, annual meetings and more. In this dynamic governance environment, CSCS serves as an unparalleled resource for answering questions about corporate governance, what is considered good corporate governance and how to deal effectively with issues of compliance. As part of our mandate, our organization strives to provide timely information about recent changes and developments in Canadian corporate governance, across all business sectors.

Our membership is composed principally of corporate secretaries, assistant secretaries and business executives in corporate governance, ethics and compliance functions, as well as others involved in duties normally associated with corporate governance in Canada. Associated titles include Corporate Secretaries, Assistant Corporate Secretaries, Corporate Governance Managers, General Counsels, Chief Compliance Officers, VPs of Regulatory Affairs, Board Administrators.