Archive for the ‘Diversity’ Category

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Augusta Golf Club Needs to Get Real and Admit Women Members

Apr 13

Posted in Diversity, Women on Boards | Comments Off on Augusta Golf Club Needs to Get Real and Admit Women Members

CNN’s Piers Morgan, Masters winner, Bubba Watson, Donald Trump and National Association of Corporate Directors’ (NACD) CEO, Ken Daly, all weighed in this week on Augusta National Golf Club’s policy of excluding women members. See, if you are interested, the list of Augusta’s all-male membership roster, curated by USA TODAY, here.

Ken Daly, in an NACD webinar on ethics and capitalism, called Augusta’s policy of excluding women “DS,” which, he said, stands for “damn silly, in 2012, when women comprise 51% of the population.” Augusta’s policy was a trending issue in social media, including LinkedIn and the twitterverse, with governance leaders Sandra Rupp, Jayne Juvan, Frank Feather and Ray Williams weighing in. Even a petition has started to admit IBM’s first female CEO, Virginia Rometty, who watched on the sidelines with a pink jacket instead of a member’s green one. IBM is a major Masters sponsor and Augusta “has a history of inviting the company’s top executive to join its club.”

Why is the exclusion of women members by a private golf club a corporate governance issue?

It is an issue because all over the world now, in dozens of countries, there is a movement to the diversification of corporate boards and senior management teams in order to make better decisions. Director and executive recruitment and networking is done on golf courses. Excluding women has business consequences for them. This is also about corporate leadership and values of IBM and Augusta National.

Private clubs or associations are not islands. They pay taxes, often enjoying nonprofit tax advantages on behalf of taxpayers, and have corporate sponsors, advertisers, governing bodies (such as the PGA), customers, suppliers and local communities. Still, less than 1% of America’s golf clubs exclude women. This is a signaling issue in that it is okay to discriminate. By extension, stakeholders interacting with clubs that discriminate endorse and enable the practice.

This is also a membership issue for clubs themselves. I was asked by a new female board member last month to lunch to advise her on bringing governance reforms to a very prestigious club. As I sat in the dining room, it was almost empty. I remarked that female, minority and younger members were the future of the club, given changing demographics. And the club needed to “get real” about diversity, as well as its governance, and have transparent, inclusive policies. There is little if any substantive disclosure of how Augusta is governed on its website and how decisions are made. This is always a red flag for me and tells me an organization may not be person-proofed or have up-to-date policies.

Just in the last month, Julie Dickson, head of the Office of Superintendent of Financial Institutions (OSFI), the Canadian regulator for financial institutions, addressed in a speech the importance of boardroom diversity to avoid groupthink. (OSFI’s 2003 guidelines are expected to be updated by the summer.) The Conservative government announced in its budget an advisory council to promote women on boards, under the leadership of Minister Rona Ambrose. EU Justice Minister, Vivian Reding, also a woman, has indicated that she is prepared to use quotas if companies do not raise the number of women in senior management and on boards.

Golf is part of business. As Melisa Denis, Women’s Advisory Board member at KPMG, stated in the LinkedIn Group, Boards and Advisors, “I just came back from Augusta this weekend. If anyone doesn’t think this is business they are naïve. Business is done on the golf course – whether you are playing or not. To deny membership because the CEO is a female puts this country back 20 years (at least).”

Augusta National needs to “get real” about women members. Interestingly, the NACD is also offering events to discuss how corporate boards can “get real” about diversity too. Well done, NACD.

Canada scores an “F” in preparing for the diversity tsunami

Dec 2

Posted in Diversity | Comments Off on Canada scores an “F” in preparing for the diversity tsunami

The US, UK, Belgium, France, Germany, Italy, Spain, the Netherlands, Australia, New Zealand, Norway and Sweden either have or are mid-way through changing laws on the books to promote greater gender and ethnic diversity on boards of directors since the financial crisis.

Diversifying corporate boards has been described as the number one issue in corporate governance. The movement is so broad that it is coined in New Zealand as the global governance “tsunami.” Governments are now very serious about who is sitting in boardrooms and ensuring that boards are no longer asleep at the switch.

Where is Canada in addressing board diversity? The 2005 corporate governance guidelines – which are now out of date: there is only one sentence on risk management for example – do not address boardroom diversity. Political leadership, with the exception of Quebec, has been absent.

Why is boardroom diversity so important? Because it leads to better decisions, which are what boards do. Women and directors from different cultural and ethnic backgrounds are less socially embedded than a homogenous group – a “closed shop” as it was described in the UK last week – and are more apt to challenge, monitor and control management the academic evidence reveals. The UK Prime Minister has said that increasing women on boards would help to drive down an astonishing 49% increase in directors’ pay. Institutional shareholders are now talking about voting “no” to nominating committee directors whose boards lack female representation.

Boards will not diversify on their own. There is entrenched self-interest to maintain the status quo. The status quo is to accord primacy to fellow CEOs (who are almost always male). Yet there appears to be scant evidence that CEOs make for more effective directors. Indeed the evidence appears to be the opposite. Second, long-serving directors (who are also largely male) do not stand down and a board is a fixed size, thus blocking renewal and diversification. In the UK, another change after the financial crisis is that any FTSE director serving beyond 9 years is presumed to no longer be independent. Canada has a significant number of male directors who exceed this limit and in some cases have served 15-25 years on a board. In addition, shareholders do not have “proxy access” (yet), meaning that the board and management largely selects itself, rather than being selected by shareholders. In short, the deck is stacked against diversification.

The figures bear this out. Depending on the survey, women have been stagnant at 9-14% for the last 10+ years. The figures for minority directors are much worse, at 3-4% (and these figures are generous). This is a global talent and competitiveness issue for companies and countries.

What is needed to prompt greater boardroom diversity? Political attention and leadership. A Canadian case in point: Quebec Premiere John Charest announced in 2007 that all Quebec boards of directors are to achieve gender parity by December 2011 (this month) – meaning equal number of men and women; and that the boards of Quebec companies are to much match the cultural make up of Quebec, reflecting the various components of Quebec society. And all director appointments are to be based on skills and experience profiles.

Governments prompt diversity in four ways.

1.         The first way is to do nothing and hope for the best, which is where Canada (but not Quebec) currently lands.

2.         The second way – exemplified by the US – is to mandate that all listed companies must disclose diversity plans for boards and senior management, but without defining diversity. The advantage of this is disclosure of a plan. The disadvantage is that lawyers define diversity downward to include diversity of “perspective” or “background,” whereby a non-diverse board could actually claim to be “diverse,” thereby obviating the intent to achieve gender and ethnic diversity.

3.         The third way – exemplified by Australia – is for the regulator to define diversity and require progress disclosure by companies in setting and achieving their own objectives based on the definition. Australia defines diversity for example as “gender, age, ethnicity and cultural background.” The figures for these groups have been steadily increasing ever since.

4.         The fourth approach – exemplified by Quebec and Norway – is full-fledged quotas – 40% women in Norway and 50% women plus cultural matching in Quebec. This obviously is the biggest stick a government can wield, and there are advantages clearly in the certainty of achieving imposed targets, without gaming definitions or feet dragging.

The best, most flexible approach is a variant of # 3, which is to define diversity – as a guideline or principle – and then hold companies responsible for achieving their own objectives and practices, through a comply or explain approach.

What is not acceptable is to do nothing, especially when the rest of the world is passing Canada by. The right directors can make or break a board. It’s time not only for companies – but also for governments – and in particular the Prime Minister, Stephen Harper, to focus on this issue.

15 Questions to Consider / Ask Before You Join a Board

Sep 30

Posted in Diversity, Member Selection, Competencies and Commitment | Comments Off on 15 Questions to Consider / Ask Before You Join a Board

As shareholders begin to develop strategies to nominate directors (see e.g., a new CalPERS database) and as regulators begin to diversify corporate boards (see my previous column), directors are increasingly being asked to serve on boards for the first time.

I have been asked several times for the list below on the “due diligence” that a new (or even seasoned) director should employ when being asked to join a board.

The questions below help to focus the director and the company on a beneficial fit.

Here is my list, in no particular order, designed for both for profit and not for profit boards.

1. For director insurance, ask to see the policy and have it independently reviewed, including scope and depth of coverage, exclusions and indemnities. Assume the worst case scenario.

2. Ask about donor stewardship assurance (not-for-profit boards), conflicts of interest, internal policies governing self-dealing, asset treatment, ethical compliance, expense reports for staff, gift policies, related party transactions and reputational-related risks.

3. Ask to see all important reporting (financial, budgets, by-laws, strategic, risk, operations, resource allocation for programs and administration, beneficiaries / stakeholders, governance) as part of your consideration.

4. Talk to current and past directors if possible (including the CEO/Executive Director).

5. Who chairs the board? What is his or her leadership style, commitment to effective governance? Are there factions, cabals or undue influence, by a particular shareholder, director, manager, donor or other stakeholder for example?

6. Ask what your roles, responsibilities and expectations are, both generally (as a director), but specifically (your expected contribution). Are donations or fundraising expected, in the not-for-profit context?  If so, what are expectations, so you know what you are signing on to.

7. What competencies and skills do you possess that would contribute to your effectiveness as a director?  What contribution does the board think you could make? Is your directorship tied to your professional role at your firm (assuming you are not yet retired)?

8. How many board meetings are there? Length? Location? Frequency? Committee meetings? What is the tenure? Reappointments?

9. Is there any pending or past litigation? Tax arrears? Wages? Infractions? Staff difficulties? Red flags? Problems or issues?

10. What are the quality and ethics of the Executive Director and the management team (including CFO, internal audit if it exists)??This question is very important.?I would also do online searches. Consider background checks if you are unsure or see red flags, which itself should be cause for concern. If the directorship is important and the board really wants you, consider having the company provide independent assurance.

11. How is the CEO or Executive Director assessed? By whom? How is compensation for him/her and staff established? Are there conflicts between volunteers or operational roles and director/governance roles, in the not-for-profit context?

12. Does the organization have a whistle-blowing procedure? What are the ethical reporting procedures to, and oversight by, the board?

13. Does the board assess its own performance??Including that of the chair and individual directors?

14. What are the professional development and learning opportunities on this board, particularly if you are not from the industry or sector?

15. Lastly, make sure all approvals/sign-offs occur by your home company, so if anything goes wrong, you are covered.  Make the case for serving on an outside board to your current organization on the basis of professional development, networking, learning, brand and reputation development, for you, your organization and the board.  Count on spending 200-250 hours per year at least, even for a not-for-profit board.  Your responsibilities are no less in the not-for-profit context.

Do your homework

When I ask directors of one of their regrets as a director, an answer I hear is “joining the wrong board.”

If a company is unable or unwilling to answer the above questions, on a confidential basis, that should tell you something.

Once you join a board, it is much more difficult to extract yourself if you have made a mistake. Joining the wrong board can involve time, unnecessary distraction, and can even put your personal assets and reputation at risk. The main person to protect your interests is you. The above list is worth taking note of.

Canada’s Absence from the Global Movement Towards Diverse Boards of Directors

Aug 22

Posted in Diversity, Women on Boards | Comments Off on Canada’s Absence from the Global Movement Towards Diverse Boards of Directors

On Monday August 21st, I am delivering the opening keynote address to the annual Canadian Society of Corporate Secretaries conference in Quebec City. (See my PDF slide deck with embedded links here). It is beneficial that the conference is being held in Quebec City this year. In Quebec, Premier Charest mandated into law in 2007 that by December 2011, boards of directors of all Quebec enterprises need to be comprised of an equal number of men and women, and that the cultural make-up of boards reflect more the ethnic diversity of Quebec.

Quebec City academic Marie Marie-Soleil Tremblay was also a part of a working group of eight Canadians who addressed board diversity in a submission that was recently made to the European Commission, which is contemplating introducing initiatives to make boards of directors within European Union countries more diverse. (See the group’s report here and the European Union “Green Paper” on proposed corporate governance reforms here (PDF). The questions on board and gender diversity are 5 and 6.) I plan to draw on our group’s submission in my address. The diversification of Canadian boards will be my opening topic. I also plan to show this video provided to me by Catalyst in the US.

With the exception of the Province of Quebec, Canada has been noticeably absent from the global boardroom diversity movement. Major initiatives by market regulators – ranging from disclosure of diversity plans, to self-imposed objectives, to full-fledged board quotas – in the US, UK, Australia and a number of European countries are well underway. At a the 2011 Institute of Corporate Directors Fellowship Awards Gala, Spencer Lanthier, who was one of four Canadian directors honored, called boardroom diversity “the number one issue in corporate governance right now” and that boards should just “get on with it.”

It is difficult without some form of government leadership (e.g., disclosure of diversity plans in a “comply or explain” manner), similar to that of other countries, to expect corporate boards to “get on with it,” given that boards are of a limited size and bringing on a woman by necessity might require removing a man. Both women and men tell me in confidential interviews that the system is presently “stuck.” The figures in Canada for women on boards have hovered around 8-14%, depending on the survey, and have been stagnant for many years, with only small upticks. Australia recently reported, after the Australian Stock Exchange required companies to state diversity objectives and progress towards meeting them, a whopping 600% increase in women being appointed to corporate boards in just two years. Now women comprise 30% of all new director appointments. The figure used to be 7.5%.

There is no reason women should not comprise a similar percentage of all board appointments in Canada. In the aftermath of the financial crisis, which includes scathing reports (here and here (PDF)) documenting governance and regulatory breakdowns, governments want to make sure that boards can be as strong as they possibly can be. There is academic evidence that women make better monitors within boardrooms and that men even enhance their performance when women come on to boards. (See my article in English, here, and in French, here.) There is also a case to be made that group-think (which means groups agreeing too much by virtue of similar background and social pressure to conform) is counteracted with greater diversity, in all forms (women, visible minorities, Aboriginal Peoples and people with disabilities). Beyond the academic case however, the business case is that having diverse boards ensures access to a broader talent pool of Canadian directors, as Canada increasingly sees China, India and Brazil as trader partners and our companies need to compete in the global marketplace.

The case against gender diverse boards is that many or most women are not former CEOs and do not have broad-based, business experience, with direct responsibility for profit and loss, which is helpful experience for boards. Yet there is scant academic evidence that CEOs make better directors. Moreover, enterprise leadership includes not-for-profit, professional firms, and divisional leadership within companies, as well as “up-and-comers” in the executive suites, such as CFOs and COOs. Competency matrixes (required for boards under National Policy 58-201 Corporate Governance Guidelines, section 3.12) now include skills such as social media/technology, sustainability, human resources, and public policy, where women are particularly strong. Expatriates with international experience (in India and Asia) who know the players and the markets are of enormous assistance to management teams when they sit on boards.

It is also not the case that diverse directors cannot be found, or the pool is too small, which is another argument against diverse boards. My LinkedIn® Group, Board Advisors, for example, includes 460 members. My profile alone has over 800 connections that include practicing directors and prospective directors at the top of their game. I am interviewing over 100 directors for my research and half of them I expect will be female and many will be visible minorities. There is a rich network of very well qualified directors out there for board positions. Search firms and nominating committees of boards would be well advised to look harder, and more creatively. The world has changed and prospective directors cannot simply be found at private clubs like they used to. Canada has incredibly talented directors, and we need to use all the available talent we can.

The benefits for board diversity is are enormous. Boards need to get on with it, yes, but so do our government and regulatory leaders in providing that extra “nudge.” Having companies disclosure diversity plans, for the board, senior management and the company as a whole, is a needed first step.

 

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