Disclosures on diversity, or: tap those innate abilities!

Canadian securities regulators propose changes to corporate governance disclosure practices and guidelines, announces a recent news release.

Here’s an extract:

  • The Canadian Securities Administrators (CSA) is seeking public comment (by July 12, 2023) on proposed amendments to corporate governance disclosure rules and policy relating to the director nomination process, board renewal and diversity. They would require disclosure on aspects of diversity beyond the representation of women, while retaining the current disclosure requirements with respect to women. In addition, the CSA is proposing changes to the corporate governance policy that would enhance the existing corporate governance guidelines relating to the director nomination process and introduce guidelines regarding board renewal and diversity.
  • …The main objectives of the proposals are to:
  • Increase transparency about diversity, including diversity beyond women, on boards and in executive officer positions;
    • Provide investors with decision-useful information that enables them to better understand how diversity ties into an issuer’s strategic decisions; and,
    • Provide guidance to issuers on corporate governance practices related to board nominations, board renewal and diversity.

The proposals use the term “identified group” to mean “a group of individuals with a shared personal characteristic, whose representation on the issuer’s board or in its executive officer positions has been identified by the issuer as being part of the issuer’s strategy respecting diversity, but does not include women.” Proposed disclosures would then include whether the issuer has set a target number or percentage, or a range of numbers or percentages, regarding the representation by a specific date of women and of individuals from identified groups on the issuer’s board and executive officer positions; information about those targets or percentages (what they are; the timeframe for achieving them; the annual and cumulative achievement of the targets); or alternatively information about why it hasn’t set such targets. An accompanying illustration sets out how this might involve a table setting out the numbers of directors and executive officers who self-identity as indigenous peoples, LGBTQ2SI+ persons, persons with disabilities, “racialized persons,” and so forth. The proposals acknowledge that “information reported on either a mandatory or voluntary basis must be based on voluntary self-disclosure by directors and executive officers and comply with applicable privacy law requirements. Directors and executive officers may choose to not disclose how they self-identify.”

I suppose that any reaction to such proposals must be somewhat mixed, probably for a table-worthy diversity of reasons. I certainly believe it’s a social evil, and a strategic folly, to exclude people, on diversity-resistant grounds, from roles for which they would be well-qualified. However, it doesn’t at all follow that the activities of any collection of people spanning a range of “identified groups” will be inherently virtuous (consider, for instance, the quality of Trump’s non-white male nominees to various roles). Regardless of their origins and backgrounds (or maybe in part because of the nature of their efforts to transcend it), a group of by-some-measures diverse people may have very little diversity of ideology, strategic imagination and thought (many boards might benefit from treating “left-leaning activists” as an identified group). And it’s complacent to focus only on diversity at the well-paid upper levels without addressing organization -wide practices and principles.

At its worst, the commentary on this area can be truly cringe-worthy. I cited in the past the Globe and Mail’s quoting of Dr. Chris Bart, a business professor at McMaster University in Hamilton, as follows:

  • Prof. Bart suggests the differences (between how men and woman contribute to boards) may be “genetically driven,” and women may simply be wired to have better social co-operation and consensus-building skills.
  • “That skill is inbred in women much more so than it is in men. When it comes to making decisions at the board level, you need this level of inquisitiveness, you need this ability to see more possibilities and alternatives to make a decision that’s judged to be more fair and consistent over time. And women seem to have this innate ability.”

But as I wrote before, even if you subscribe to this regressively biologically-determined view of things, what would it actually mean in the context of (say) the audit committee’s review of financial statements? Would it mean that a woman, by virtue of being a woman, was more likely to see “possibilities and alternatives” for how, say, the impairment calculation might not have been done properly by management, or revenue might be recognized too aggressively? Might it mean a woman would be better at cutting through the boilerplate disclosure, or at thinking of better ways to format the notes? Even if so, couldn’t an enhanced awareness of possibilities and alternatives just as well express itself through a greater creativity in advocating for bending the rules without getting caught? Bart’s view of things pushes us to search for widely-recurring real-world narratives along those lines, but it’s hard to say experience bears it out, or that you would want it to.

Collectively, diversity is overwhelmingly part of our strength. But it’s reductive (and not much borne out by research) to say that any individual application of “diversity,” as self-assessed by the reporting entity, will aid corporate performance, or, even more problematically, that it will do so in a way that furthers the broader good. The quantitative disclosures that eventually result from the proposals, assuming they’re implemented in something like their current form, should be handled with extreme skepticism…

The opinions expressed are solely those of the author.

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