For those of us in the business of safeguarding and building positive corporate reputations, the issue of board and executive diversity has become impossible to ignore.
In a sea of IPOs and corporate transformations over the past year, investors, stakeholders, and the public are taking a closer look at the makeup of leadership teams and boards of directors, asking, “Where’s the diversity”? We’ve seen that play out recently as Bumble’s IPO is celebrated for its majority-female board, while WeWork’s IPO attracted criticism of their all-male board.
Diversity in leadership ranks can benefit a company’s reputation, and its absence presents an inherent risk. The real goal, however, is not just reputational gain; it’s performance — as a diverse team will be better able to both anticipate risk and seize opportunity.
Why leadership diversity is an ESG imperative
Leadership diversity is not a new concept. For years, corporations have been making commitments to increase underrepresented groups in their workforces, recently at the most senior levels. What changed in 2020? Investors’ expectations.
It’s no longer enough to pledge diversity; they need to see it. Amidst a global pandemic and social justice movements that spotlight glaring inequities in business and society, board and leadership diversity has become an essential element of demonstrating ESG (Environmental, social and corporate governance) performance.
In a recent post, we asked: “As a human structure, what does a corporation owe the human beings it comprises and serves?” Ensuring corporate leadership represents the diversity of our internal and external stakeholders — and diverse professional and personal experiences — is a place to start.
The performance principle
Excluding certain populations from the leadership table is not only concerning from a moral and ethical perspective; it hurts business too. Goldman Sachs’ decision last year to not take companies public without ‘at least one diverse board candidate’ is rooted in the investor’s experience that public offering performance with at least one female director is “significantly better”.
A series of studies by McKinsey & Company points to the improved performance of companies who appoint a heterogenous board. By adding diverse directors, a company benefits from unique points of view, fresh insights and even varied technical and professional skills. The diversity factor has also been proved to enhance decision-making.
Lacking representative diversity at the leadership level is a long-term, material risk– and mitigating risk to optimize sustainability is at the heart of ESG.
The global investment community is increasingly serious about the issue, and Goldman is just the tip of the iceberg. Canada’s own CPP Investments – with nearly $5 billion in assets – has a proxy voting policy to enable greater board diversity. Last year Nasdaq filed a proposal asking the Securities and Exchange Commission to approve new listing rules and transparency measures surrounding the makeup of companies’ boards of directors.
The issue is also top of mind for regulators. Senator Howard Wetston – Ontario’s former top securities regulator – told The Globe & Mail that companies should be required to set, and disclose, a target for board diversity because it “is no longer a matter of whether or not we should do it; we must do it.”
Where we are vs. where we need to be
Unfortunately, we have a long way to go. Statistics on representation from women, Black, Indigenous, people of colour, and people with disabilities at the executive and board levels are shockingly disproportionate to our population. For example, a report from BCG and CivicAction shows that Black leaders hold less than one per cent of executive roles and board positions at major Canadian companies, despite representing 3.5% of the population.
Numbers don’t lie: the corporate world is behind. We see this reflected in statistics and have heard it directly from some clients. They know they need to do better to address diversity among their leadership and board of directors.
At our firm, we also recognize that despite having visible-minority ownership and a highly diverse employee base, our leadership team is less diverse today than we aspire to be tomorrow. That is why every senior member of our team pursues training and ongoing education on equity, diversity, inclusion, and Indigenous reconciliation.
Where do we start?
Organizations with homogenous boards and c-suites must start from a place of reflection. This includes doing the critical work of listening and learning from their internal and external communities to understand their expectations. Leaders must also examine the unconscious biases and barriers that might be standing in the way of progress. A well-thought-out plan and transparent communication are essential, but objectives must be set and measured regularly.
This work has not only become an expectation from business leaders, investors, and regulators; it will become table stakes for reputation and long-term business performance.
About the Author
Joanne Pitkin is VP, Corporate and Public Affairs, a member of Argyle’s ESG communications consulting team and serves on the Communications Committee for Women in Governance.