Directors' group gives thumbs down to mandatory quotas for boards

Share

Canada's Institute of Corporate Directors has rejected the idea of mandating quotas for women to beef up diversity on corporate boards, but is calling for companies to adopt voluntary measures to improve board membership.

In a diversity report to be released Monday, the 5,000-member ICD, which represents corporate directors across Canada, says it does not support quotas – which have been adopted in a number of European countries – to mandate more women on male-dominated boards.

The report says a better route is to urge boards to voluntarily adopt formal diversity policies that outline key criteria for board membership. Boards should also direct search firms to include varied candidates – and candidates unknown to current board members – in searches for new directors, the report recommends.

The ICD report also says companies should consider adopting limits for directors' terms of service to encourage ongoing board renewal.

"A lot of people have been talking about diversity, and it has all been directed at directors," ICD chief executive officer Stan Magidson said in an interview.

"We thought it was important as the voice of the director community to step up on this, and to say from our membership's perspective, there is validity to diversity and this is the way we would suggest we go about it in Canada."

The ICD held a series of meetings with its members across Canada this fall and conducted a survey of directors, spurred by growing debates around the globe about board diversity. The survey found just 4 per cent of corporate directors support mandatory quotas, while almost 60 per cent support the adoption of a formal board diversity policy.

The survey also found 90 per cent of directors agree that board diversity is an important governance issue and almost 80 per cent believe diversity contributes to better decision-making.

Mr. Magidson said many directors disagreed with quotas because they wanted to be chosen for a board on merit, not to comply with a regulation.

"Highly qualified individuals said, 'We don't want to go on a board as a token gesture. We want to be there because it's meritorious.' That was a common element of feedback we got."

Quotas are being adopted more and more in Europe, where countries such as France, Ireland, Norway and Spain have introduced mandatory quotas for women on public company boards. In the United States, companies are required to disclose how they consider diversity when choosing new directors, while British companies must disclose their board diversity policies and how much progress is being made toward greater diversity.

Canada has not adopted similar requirements for public company boards, but quotas have been championed by Liberal Senator Céline Hervieux-Payette, who introduced a private member's bill in the Senate calling for Canada to adopt quotas for women on corporate boards. The bill has not received support from the majority Conservative government.

Ms. Hervieux-Payette has said mandatory quotas are needed because the pace of progress has been glacial, with women comprising just 10 per cent of directors of publicly traded companies in 2009, according to the advocacy group Catalyst.

The ICD report recommended boards should consider broader parameters of diversity, such as age, geography and skills, rather than just gender and ethnicity. Mr. Magidson believes that would not lead to companies relying on the broader definition to argue almost any board is diverse in some way. Instead, investors would review a board's formal diversity policy and object if it is too weak, he said.

"In my view, the market will judge that," he said. "Our sense is that once companies start disclosing what they're doing, you'll start to see positive trends in terms of a broader kind of representation on boards."