National Post (National Edition)
SURVEY SAYS
BOARDS ARE WORRIED ABOUT GOVERNMENT DEBT, BUT TECH CHANGE A BIGGER DIRECT THREAT.
The Institute of Corporate Directors recently released its Spring 2021 Directors Lens Survey, looking at attitudes in boardrooms across Canada. The Financial Post's Barbara Shecter caught up with ICD president and chief executive Rahul Bhardwaj to discuss the results. This interview has been edited and condensed.
Q: What are the issues corporate boards are worrying about right now?
A: Government debt was No. 1 on the list from a perspective of what's the most pressing to the country. Next, we had climate change. But when they look at it from a perspective of what's most pressing to their individual organization, government debt was not No. 1. It was technological change, followed by power, access to capital and climate.
Q: Does that surprise you?
A: That's not all that surprising, because we've heard this over the last couple of years, that companies are concerned about the risks and the opportunities of technological disruption and change. There has been this almost generational technological uncertainty and there is a risk component to it: How is this going to potentially disrupt our companies? And what's the opportunity side? As boards are seeing their organizations and companies change with all this uncertainty, talent is top of mind.
Q: What are the main issues around talent?
A: How do we recruit the right talent? How do we retain the right talent? That's got all of the implications around culture. But then there's also a skill match, that they want to make sure that in this world of technological advancement and change, we have the right people with the right tools, and we have the right culture to recruit and retain. So that's a huge one.
Q: What are some of the other factors that are top of mind for directors?
A: One of the big takeaways is what shows up No. 4 on that list and that's climate change. And that's one that has become a very interesting conversation for boards because boards are focused on competing priorities all the time. They're frequently looking at things that are immediate to them, but then climate change is a longterm risk.
Q: Is the longer timeline why that's not higher on the list?
A: Some are surprised it's not higher on the list. Others are saying, well, not so surprised, given all the other relative priorities. It's an interesting time to see how boards are prioritizing their challenges. Like everything in ESG, it's the idea that if you're being too short term — about your customers or your employees and their well-being — that that's going to bite you longer term.
Q: Did the COVID-19 pandemic have any impact on where we are in that balance right now?
A: At Exxon recently, a very small shareholder group got a whole bunch of other shareholders onside around a climate change issue, right in the middle of the pandemic. And what they managed to go to Exxon and essentially say: `You haven't been doing enough over the last couple of years to capture the value in a decarbonizing world.' In other words, your strategy's not the right strategy to maximize shareholder value and stakeholder value long term, and you haven't engaged with the shareholders meaningfully around this. Thinking about some of these long-term issues, and how to minimize risk and maximize value for all stakeholders in that environment, that's a big pendulum swing. The language around that is different in the boardroom today. Shareholder value is important, but the game plan here is really maximizing all stakeholder value. You can't be tone deaf to the environment corporations are active in, whether it's #MeToo, Black Lives Matter, climate change or more demands of ESG. Society at large is expecting corporations to be providing value to all stakeholders in a different way.
Q: What is happening in boardrooms in terms of diversity?
It seems to finally be reaching beyond gender in Canada, yet your research revealed a split on whether quotas are needed to expand corporate diversity.
A: There's some progress being made. Some think it's too slow. We've seen good progress on the gender side, but that can move faster. At the very beginning, people would say, well, look, easy fix, just put quotas. Corporations are a little reticent about any type of regulation that they can avoid so the initial response was give us some time to work through this. And in some cases, they've done a very good job. In other industries, it's been more challenging. If you look at the specific question that we had on our survey it asked whether the board should institute quotas for diverse candidates — not the regulator or legislation or a third party, but the board itself — and you see that you've got about a 50/50 on that. So right now, we're seeing a discomfort I think with the word quota, because that creates in many people's minds inflexibility, and they want to make sure that that's going to support their strategy as well.
Q: Are targets more palatable to those who don't want quotas?
A: There's more openness towards setting targets, and we're hearing that more boards are setting targets for their own advancement of diversity. If in the next five to 10 years, we're not seeing enough progress on this, the question becomes, will there be a firmer regulatory response to this? And I might add that if you look at what's going on in the States, right now, it made some pretty significant advances over the last three to six months in the wake of the Black Lives Matter movement, and that is momentum down there.
Q: Do you think that momentum will ultimately make its way to Canada?
A: I think that the culture around approaching diversity in the boardroom is far more constructive and productive now. And I expect that we're going to have to see some results over that over the next five years, and we're going to have to see them faster. It's happening, but it's slow. I hope that momentum will pick up.