DRUNK ON BOARD DIVERSITY.
TERENCE CORCORAN
During a November Senate banking committee review of Innovation Minister Navdeep Bains’s Bill C-25 — legislation to bring “diversity” and shareholder “rights” to the Canada Business Corporations Act — the minister repeatedly claimed that diversity on corporate boards and in senior management would deliver better corporate performance. It is “good for the bottom line,” he said. He said he had studies.
Sen. David Tkachuk asked: “Could you table some of these studies?” Bains had dutifully cited a McKinsey report, “The Power of Parity: Advancing Women’s Equality in Canada,” one of many such papers the global consulting firm has produced — as part of its self- promotion strategy — on the benefits of increasing the role of women in the workforce.
Unfortunately, the McKinsey report did not support directly Bains’ repeated claim that increased diversity on corporate boards generated superior returns. Bains also cited another study that he said showed that female corporate leadership produced return on equity of 10.1 per cent compared with 7.4 per cent for those without.
But Sen. Tkachuk said he had seen some academic research that disputed findings that women on boards necessarily boosts corporate performance. Tkachuk is right. Wharton management professor Katherine Klein concluded last year that “Rigorous, peer- reviewed studies suggest that companies do not perform better when they have women on the board. Nor do they perform worse. Depending on which meta- analysis you read, board gender diversity either has a very weak relationship with board performance or no relationship at all.” Klein added that research conducted by consulting firms such as McKinsey is not as rigorous as peer-reviewed academic work.
A major systematic review of gender performance claims conducted by two Stanford researchers, Deborah Rhode and Amanda Packel, found that while “empirical research has drawn much- needed attention to the underrepresentation of women and minorities on corporate boards, it has not convincingly established that board diversity leads to improved financial performance.”
Gender, however, is but a small part of the Bains diversity agenda. Bill C-25 does not define diversity; that will be left to regulation which, if Bains and the Trudeau government have their way, will transform corporate boards and management teams into paragons of inclusive growth and development. As Bains describes his government’s diversity objectives, Bill C-25 constitutes another major component in the ongoing war on corporations.
Bains sees board diversity as encompassing the whole national rainbow of sex, ethnicity, race, disability and Indigenous people. The diversity targets, he told the Senate committee, should ultimately track all forms, including “religion, culture, sexual orientation, economic status or lived experience.” As data are gathered on all these element of diversity, it will allow for a “richer, more evidence- based discussion between shareholders and the management and directors of corporations.”
Bains was later asked by Sen. Howard Wetston, former head of the Ontario Securities Commission, to elaborate on the meaning of “diversity,” since most discussion to date in corporate circles had focused on gender. In response, Bains said “there’s no common definition of diversity” and that “Fundamentally, from my point of view, it’s diversity of thought, perspectives and ideas.”
Sen. Pamela Wallin later delivered an astute observation. The minister was making it clear, said Wallin, that through Bill C-25 “they don’t just want to use the gender targets, the racialized targets and disabilities targets; he is looking at something else and trying to work in the realm of ideas. He wants people with diverse views, approaches and thinking, and this will bring us a different kind of board.”
Wallin has a point that should alarm all of corporate Canada. Government- mandated diversity of views and thinking has no place in the boardrooms of the nation. Boardrooms are centres of profit- seeking decision- making aimed at providing returns to investors. With Bill C-25, Bains and Trudeau are launching another subversive attack on the corporate model that would change corporations into socio/political operations. Should boards be required to include members of green groups, carbondivestment institutions, labour officials, sustainable development advocates and government pension funds — on top of meeting gender, racial, diversity and Indigenous targets?
As it stands, the targeting effort suggested by Bains and left open to regulatory control is a mathematical impossibility. On top of the subversive ideological objectives, the proportional- representation targets become absurd. To meet Canadian demographic norms, Canadian corporate boards would need to comprise 50- per- cent women, 18- per- cent visible minorities, 14- per- cent people with disabilities, and five-per-cent Indigenous people.
Bains would have Canadians believe superior corporate performance can be achieved by government-imposed conditions on corporate governance and management. If corporations do not conform to the general objectives of Bill C-25, Bains repeatedly threatened more direct action. In his Senate appearance, the minister warned that if meaningful progress is not achieved “the government is prepared to re- examine the tools it has and, if appropriate, take action.” Later he added, “if progress is slow, stronger measures will be considered by our government.” And again: “If we don’t see meaningful progress (within three to five years) we’ll have to re- evaluate what else we have in our tool kit.”
The Senate banking committee resumes its review of the government’s proposed reform of the Canada Business Corporations Act on Jan. 31. The good members of the upper house have ample reason to take amendment action that would send Bill C- 25 back to the House of Commons, where it deserves to a quiet demise.