Journalist, Diplomat, Entrepreneur & Author

Debate on Bill C-25

24 October 2017

Debate on Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act

Honourable senators, it was former First Lady Michelle Obama who once said:

When you’ve worked hard and done well, and you’ve walked through the doorway of opportunity, you don’t slam it shut behind you. You reach back and give other folks the same chances that helped you succeed.

That has been my experience in business and on corporate boards, and it is what brings me to join this debate on Bill C-25. The bill is well-intentioned: improve corporate transparency, increase shareholder democracy, reduce the regulatory burden, and increase women’s participation and overall diversity on boards and in senior management.

Women hold only 14 per cent of all seats on Canadian boards, according to a new study by the Canadian Securities Administrators. That’s up 3 per cent from 2015.

Big business did a bit better. Companies with a market cap over $10 billion had 24 per cent of their board seats held by women, again up 3 per cent from 2015.

More encouraging, 61 per cent of Canadian companies have at least one female board member, up from 49 per cent just three years ago.

So the situation is improving, and it will keep improving because it makes the bottom line better.

As my colleague Senator Wetston and others have pointed out, there have been several major studies, by the IMF, McKinsey & Company and the Peterson Institute, which show a clear correlation between improved corporate financial performance and the presence of women in senior positions.

Men and women alike agree that attributes which are often considered female are crucial to decision making in today’s often chaotic economic environment. These are attributes such as non-linear thinking and multi-tasking and sensitivity to corporate culture issues.

A friend and mentor, Maureen Kempston Darkes — the former President of GM Canada — believes women do indeed bring a different perspective to the boardroom and the executive suite. She said:

We might ask different kinds of questions. Things in our realm of experience might be different than what men have experienced. We might have a different perspective on organizational leadership in the HR area; we might have some different experiences to share with the board and senior management on financial management.

Maureen, who is now retired from GM, sits on the boards of several blue-chip companies — CNR, Enbridge, Brookfield Asset Management — and she too believes change is happening. She said:

. . . we will see more women come onto boards because we’re seeing them going into more senior positions so their expertise will be sought by boards. Boards are ageing and so there will be more opportunity to bring women [in] . . . .

The question is, how do we foster this change? Should the government be involved? The government has decided it will be, and has chosen the so-called “comply or explain” model, which is the approach that has been adopted by many provincial securities regulators, as well as the TSX, London’s FTSE, and in Australia as well.

Under this model, companies will be required to disclose annually to shareholders their diversity policies, including the representation of women on corporate boards and in senior management. If they don’t, they must explain why such policies are not in place. This is intended, I think, to be more carrot than stick. It allows shareholders to hold leadership accountable for how they promote diversity in their ranks. If there is little improvement, the government has already said it’s prepared to review the legislation in five years and enact tougher measures.

It’s interesting to note that in the U.K. and Australia, where “comply or explain” rules are in place, significant change is occurring. But what we don’t know is if this is the result of government policy or changing demographic realities in the world of work or some combination of them both. So is a legalistic approach necessary given the changes we are seeing in Canadian society and broader?

Women are now more than 60 per cent of all university graduates. They make up a majority of law school graduates. Women are starting small businesses at twice the rate of men, and their incomes are rising faster. As we see more women taking executive positions and joining boards, they will bring along other women. Perhaps that wasn’t always true, but it seems increasingly the case. As someone once said, “behind every successful woman is a tribe of other successful women who have her back.” And that too was my experience in the business world.

To reiterate, the power of changing demographics and broader diversity is being driven by many factors, including Canada’s immigration policy and education system. Anyone who checks the full-page ROB ads every spring, with the list and photos of the newly minted MBA grads from Canada’s top business schools, can see the full diversity of Canada on display. Given their diverse backgrounds, these MBA grads will help Canadian businesses gain access to markets around the world.

Maureen also believes broader diversity in the boardroom is a very good business practice. She said:

What you’re trying to do is to get the broadest perspective on oversight, insight and foresight into the company and into its decisions. Broader diversity helps in that dialogue.

So the trend towards diversity in Canada’s boardrooms is inexorable, with or without government policy. That is why I hope the regulations and guidance, though not fully explained in this bill, will lean toward the persuasive rather than the prescriptive.

The bill does not actually define diversity. We should ensure that the committee looks at this issue. Minister Bains told his house colleagues last week that the government does not intend to define diversity because they do not want a narrow lens on the issue. But if we have expectations of compliance, then what is the bar that companies are being asked to meet?

I am pleased as well that the government has eschewed mandated quotas. Nowhere is there a better example of the law of unintended consequences than when government tries to legislate change, particularly in areas where it lacks expertise. Rules imposing candidates in key decision-making capacities without intimate knowledge of the business imperatives or without regard to people’s expertise, independence or interests will surely lead to bad decisions, or worse. It might actually create internal resentments that will blow back on women everywhere, the very people the government thought it was helping.

But the core issue for me is this: Quotas contradict the principle of equality of opportunity for all. Women can and should succeed based on merit and competence, as should men. Access is opening up because, as was mentioned, there is a business case: The bottom line benefits when women are present at all levels, and men are aging out.

My reluctance to embrace the concept of quotas comes from the limits it places on women. It constrains the potential effectiveness and success of a woman who may be the right person, for a lot of other reasons than her gender — her brains, her experience or her ability — but who now might be categorized as a gender hire.

Are you being hired or promoted because you are there to represent women, and not men; or not the shareholders, unless they are women? Does a quota become a ceiling rather than a floor?

Women can compete based on merit. Then their successes are their own. Yes, mandated quotas would no doubt increase the number of women on corporate boards much faster, but in a study of businesses in Nordic countries, The Nordic Gender Equality Paradox, a country where a 40 per cent female board quota already exists, shows that women improve corporate performance when they bring experience and expertise to the board. But if they are selected to fill a quota without requisite experience, the benefits simply aren’t there.

So the evidence shows that quotas have a neutral or often negative result both for women’s advancement and company performance, two areas that are supposed to benefit.

In Norway, there was no significant change in the gender wage gap, no greater enrollment of women in business programs, and little evidence of widespread change in women’s decisions around marriage and reproduction. More troubling still is that when quotas became mandatory for all companies in 2006, of the 500 companies affected, about 100 made difficult but legal changes in corporate structure to circumvent the new legislation.

Share prices dropped after the quota legislation was announced, and the authors of one study concluded the quota led to younger and less experienced boards, which led to, they alleged, increases in leverage and acquisitions and a deterioration in operating performance.

In the U.S., some $8 billion a year has been spent on diversity issues with little success — the diversity money pit, as the authors of a new book call it. Barbara Annis and Richard Nesbitt, in Results at the Top: Using Gender Intelligence to Create Breakthrough Growth, say that what does work is leadership accountability, gender coaching, male sponsorship and board-led succession planning. We’ve been training men for so long to ignore gender and now we tell them to highlight it. Confusion is inevitable, as is fear, that the wrong joke or gesture could provoke liability issues in claims.

The point is, let’s encourage rather than compel companies to find the best people to sit on boards, and in today’s Canada there is an incredibly diverse range of talent and expertise available. The Institute of Corporate Directors and the Canadian Board Diversity Council, and groups such as Catalyst, have created lists or registries of several thousand Canadians who are “board-ready” with requisite skills, qualifications and training. As more women and minorities become executives and directors, they will bring more women and minorities into the boardroom.

I want to touch briefly on the other proposed amendments to Canada’s financial framework laws. Electing directors individually, rather than part of a slate, and requiring a majority vote for uncontested director elections, which is widely used by publicly traded companies, make sense.

I’m concerned about the proposal for annual director elections for publicly traded companies. One-year mandates for directors could lead to a high turnover or a lack of continuity and expertise, but it is becoming the industry standard and a requirement for listing on many exchanges, so the bill is headed that way.

With all this said, there is every good reason to want and encourage diversity in Canada’s boardrooms, and no good reason not to. As more women move into the C-suites and the boardrooms, we will see our country truly reflected in those roles. Thank you.