How can boards create anti-racist companies?

Nice to see data-based arguments and practical suggestions:

In the 34 years since Canada’s Employment Equity Act was introduced, we haven’t yet normalized Black professionals in senior leadership or on boards. Black people have been underrepresented, marginalized or plain excluded — and with the added intersectional lens of gender, Black women have the worst experience of all. Being a numbers person, I like to start with data. Thankfully, recent reports have begun to break down representation in employment and on boards by visible minority status (Statistics Canada’s terminology, not my own).

Black leaders occupy less than one per cent of executive roles and board seats at major Canadian companies. What’s more, they hold only 0.3 per cent of corporate board positionsand 3.6 per cent of all board positions in Toronto, despite comprising 7.5 per cent of the city’s total population. In July 2020, just as the first COVID-19 lockdown was ending, the national unemployment rate was 10.9 per cent. In contrast, the unemployment rate for Black women was 7.7 points higher at 18.6 per cent, and for Black men, it was 4.2 points higher at 15.1 per cent. This data suggests that Black workers face systemic and institutional barriers to employment in Canada and therefore advancement to boards.

Embedded in our institutions, systemic barriers are everywhere, and are therefore normalized as “just how things are done around here.” You can’t see these barriers, so this invisibility makes it difficult to measure their impact on people who encounter them. As leaders at the boardroom table, it’s essential that we play a significant role in eliminating anti-Black racism and all forms of discrimination in our organizations.

In the months following the tragic murder of George Floyd, many companies realized they could no longer be silent. Some made public statements, pledged donations, or committed actions to revisit their diversity, equity and inclusion goals. But decades of diversity, equity and inclusion (DEI) work have already shown racial disparities in the advancement of Black professionals into board seats, so it’s safe to assume that doubling down on generic DEI efforts will not address the specific issues surrounding anti-Black racism.

So, how can boards take action to create anti-racist companies?

The fish rots from the head

As an individual board member, now is the time to add anti-racism to your core values. Start by educating yourself on anti-Black racism in the workplace. Build your networks to include Black people and organizations that serve Black communities. Ask willing Black people about their experiences, but come with humility and be prepared to have your views on race and privilege challenged without getting defensive.

As a Chartered Professional Accountant (CPA), I have internalized the adage “tone at the top,” which describes an organization’s approach to preventing fraud and other unethical practices in the workplace. Racism in both overt and covert forms is an ethical issue that companies must address in the same way.

The board is ultimately responsible for establishing the tone of the organization, so it must embed anti-racism into its strategic priorities — not just pay lip service to it. Anti-racism objectives will be unique to each organization, depending on its industry, customers, suppliers and other stakeholders. For instance, a tech company writing complex algorithms to identify faces for law enforcement wouldn’t have the same anti-racism policy as a farming operation employing temporary foreign workers from the Caribbean.

The only constant is change

Board composition is important to its overall effectiveness when it comes to meeting shareholder expectations and the demands of regulators. Several factors in board composition can slow down the advancement of Black people — most notably, skills matrices, term limits and qualifying criteria.

Board governance practices have embraced the skills matrix to identify competencies needed to increase board effectiveness, but these skills cannot remain static. Why not include anti-racist skills and competencies, such as learning how to talk productively about race with fellow board members or reviewing decision-making and policies from an anti-racist lens? If the current makeup of your board falls short in these competencies, consider training or increasing the size of the board and its committees.

The lack of term limits only serves to reinforce the status quo. Regulators and companies should adopt a maximum tenure for board members. It wasn’t too long ago that a requirement for a majority of independent directors on publicly traded companies was new, but now, it’s common practice. Companies can commit to recruiting and nominating at least one Black leader to its board as the next available term comes to an end.

Corporate boards also need to examine informal requirements for board members to be former CEOs or other senior executives or to obtain excessive credentials. Is this truly what is needed, or does it serve as another mechanism to reinforce exclusion? I know many talented Black professionals in the not-for-profit sector whose qualifications would be well-suited for a public board, even though they’ve never held a corporate c-suite title. Similarly, I know many Black professionals who carry a well-respected ICD.D designation (granted by the Institute of Corporate Directors) and still are not on any corporate boards.

Your choice: Carrot or stick

Some corporations will look at policies and processes to advance Black leaders as being good for business, such as reaching new markets, addressing skills shortages, and maintaining global competitiveness, or — even better — for social justice reasons. That’s the carrot approach. Others will require a direct strategy, such as tying results to CEO performance and compensation, or through legislation. Monetary penalties for non-compliance is the stick approach.

In Canada, federally incorporated companies and TSX-listed companies are subject to diversity disclosure requirements. Bill C-25 requires federally incorporated companies to report gender and race, as well as representation from Indigenous people and people with disabilities, in the composition of its board and leadership. “National Instrument 58-101Disclosure of Corporate Governance Practices” (NI 58-101) requires TSX-listed companies to disclose the numbers, targets and mechanisms to address representation of women in their director and executive ranks. If these companies do not comply, they must explain why. But NI 58-101 has defined diversity as the advancement of women only, neglecting how gender intersects with race, sexual orientation and disability.

The Canadian diversity rules lack teeth because there are no consequences for non-compliance. You might even say it’s easier to avoid reporting and instead just explain why, in the case of Bill C-25, non-existent targets were not met, or in the case of NI 58-101, why internal company targets were not met. Needless to say, it’s unsurprising that recent data suggests the proportion of women in executive leadership has remained unchanged and that there’s a marked absence of directors from other equity-seeking groups.

Other countries have established targets and enforced them. In the U.S., NASDAQ may become the first major stock exchange to mandate board diversity reports, and to require board diversity by having at least one member identify as a woman and one who identifies as being from LGBTQ+ communities or another underrepresented group. Under the NASDAQ-proposed diversify-or-delist rules, if companies do not publicly disclose board diversity data or fail to meet diversity requirements and do not publish a reason explaining why, they could be delisted from the stock exchange. These proposals, specifically the possibility of delisting, could have greater impact on diversification of corporate boards because NASDAQ sets the rules for 3,000 corporations listed on its exchange.

Bill C-25 and NI 58-101 need to go one step further by penalizing companies that fail to comply with the rules that establish racial diversity targets. Following an anti-racist approach means always remembering that race is in every room — including the boardroom.

There are no quick fixes to the complexity of dismantling anti-Black racism on corporate boards. Change will need to be deliberate, purposeful and prolonged, but board members are uniquely positioned to challenge “how things are done around here.”

Source: How can boards create anti-racist companies?