The state has no place in the boardrooms of the nation
There should be no place for the state in the boardrooms of the nation but meddling politicians are shoving their way in anyway. Over the past year, the Trudeau Liberals have been pushing private companies to adopt diversity targets — gender parity and 30 per cent representation of “under-represented” groups — for their boards and senior management positions. The Conservatives have their own plans for a government invasion of boardrooms, proposing to force federally regulated private companies with over 1,000 employees or $100 million in annual revenue to include employee representation on their boards of directors. Both parties’ initiatives to reshape corporate boardrooms are entirely wrong-headed.
Begin with the Liberals. They are operating on the false premise that social injustice and systemic discrimination are responsible for the lack of gender parity on corporate boards. In reality, the explanation is much more benign. It is that — thank goodness! — men and women are not identical. They are different in their career aspirations, lifestyle preferences, abilities, and many other characteristics, and so will be differently represented in different occupations and positions. This fact is widely understood in other settings. Women outnumber men by three to one among public school teachers, yet if Liberal politicians have denounced government-run schools as being rife with hatred and discrimination against men, it has not been widely reported.
Government diversity targets would lead some companies to unfairly include or exclude people from their boards based on gender or other irrelevant criteria. In the absence of government intervention, companies already have every incentive not to be prejudiced: discriminating against people for irrelevant reasons is costly. Only organizations that can ignore cost can afford to engage in it. Thus it is no surprise that, unlike the vast majority of private businesses, the Liberal government itself is indulging in outright discrimination, as the Government of Canada website says that companies that do not commit to the official diversity targets will have worse access to programs, funding, and other government support than companies on the government’s “Diversity Honour Roll.”
As for the Conservative proposal, it is similarly premised on fallacies and is the latest effort by Erin O’toole to attract NDP voters into the Conservative fold by packing his policy agenda with economic heresies. It is plainly untrue, whatever O’toole might suggest, that corporations committed to serving shareholders’ interests would be indifferent to employees’ well-being. In a market economy, the only way corporations can get workers to supply labour is to make a more attractive offer — in terms of salary, benefits, working conditions, and so on — than those workers receive anywhere else. Companies in competitive markets that do not pay workers what they are worth would see them walk out the door to competing firms.
Like the Liberals’ boardroom initiative, the Conservatives’ is counterproductive. Requiring corporations to structure their boards in less than optimal ways — whether by imposing gender parity or mandating worker representation — would reduce corporate profits and discourage corporate activity. The effect would therefore be to reduce the market competition on which workers rely for protection from unfair discrimination or other mistreatment.
Of course, there may well be cases where it could make business sense to have a board that is gender balanced — or even all female, for that matter — or that includes employees. The question is, who should decide these things? The answer, surely, is the shareholders to whom the business belongs, who have the strongest incentives to get these decisions right. Not the government.
The economics of government exerting control over corporate boards are bad enough, but the underlying ideology behind such policies is even worse. The goal is to enforce a doctrine of “social responsibility” in which shareholders’ business assets must be used to advance the interests of various stakeholders, including employees, ideologues in government, social justice activists, and so on. Dictating to people that their property must be used to serve communal interests is not an attempt to improve the market economy, but an attack on it. As Milton Friedman famously wrote, the social responsibility doctrine is “fundamentally subversive” in a free society.
Unfortunately, that a policy is economically harmful and fundamentally subversive seems to be less an impediment than a requirement for inclusion in the Trudeau Liberals’ policy agenda. As for the Conservatives, given O’toole’s enthusiasm for labour unionization and interventionist industrial policies, Canadians shouldn’t be surprised by his proposal to mandate employee representation on corporate boards, but they should still be appalled by it. If the Conservatives form the next government, they ought to recant these sorts of economic heresies.
INITIATIVES TO RESHAPE CORPORATE BOARDROOMS ARE ENTIRELY WRONG-HEADED.