You gotta own it

Why culture, not compliance, is the key to making diversity stick—and to helping companies realize its full potential
By Robert Thompson

Nancy Hopkins, outgoing Cameco director: “Diversity was a proposition that was considered a little bit crazy 20 years ago. It is now considered the best way to construct and run a board”

Nancy Hopkins has witnessed shifts in a company’s culture firsthand. A lawyer at McDougall Gauley in Saskatoon, Hopkins was a female pioneer almost a quarter-century ago when she took a posting to the board of directors of uranium miner Cameco Corp. Even today, female executives and directors in the mining sector are infrequent; at the time Hopkins joined it was unheard of.

“I was the only female member, and for many years,” she says.

That didn’t strike her as particularly odd; after all, it was the 1990s and in her legal practice and in corporate governance she was used to dealing with men in what very much appeared to be a man’s world. That meant male executives from the companies she represented as a lawyer, and working through corporate issues on the Cameco board with men. “I was a female lawyer in the business law world, so I spent my life dealing with basically just men—my clients, the lawyers I dealt with, everyone,” she says in a matter of fact way.

That changed—in fact, to hear Hopkins speak about it, Cameco changed, fundamentally altered in the way it staffed its operations as well as the representatives on its board. Recognizing it worked in northern regions, the company hired extensively from the local aboriginal communities. And then, further understanding that its board had to be representative of its workers, it began adding aboriginals to its corporate governance structure, and more female board members.

Back then, the company was still partially controlled by the Saskatchewan government, which pushed for a more diverse representation. But in time, Hopkins says, the changes influenced the way Cameco (TSX:CCO) functioned and operated and fundamentally altered the company culture in a positive way. “[Diversity] is in management’s analysis now,” she says. “We do a lot of work in the north and those employees want to see themselves reflected in the board. And in addition those employees bring a perspective that is very relevant to where the mines are located. I think the company’s analysis of the situation has become more sophisticated in the last 20 years.”

Cameco isn’t alone. But with so much attention currently focused either on diversity scorecards or in touting diversity’s beneficial impact on long-term financial performance, its story fills an important space: demonstrating how companies actually come to make diversity work. Specifically, how to make the transition from doing “diversity by compliance” to having a “culture of diversity,” where the benefits of diversity-based practices are understood and the values are embedded in strategy and decision-making. “At that level,” says Andrés Tapia, global leader of the inclusion and diversity practice at Korn Ferry-Hay Group, “your diversity, your ability to be inclusive, is as valued as a business metric or a factor of who you are as anything else is.”

Tapia says that in his firm’s consulting work with companies in this area, it works with a five-stage “maturity model.” Straightforward compliance is stage one. The objective over time is to see companies develop greater awareness of what impact diversity has, then progress to application of those insights, integration into decision-making, and finally, to a Cameco-like sustainable state where diversity is ingrained and self-renewing.

“Diversity efforts always start in compliance,” says Tapia. “So compliance is a must, otherwise you don’t do the others. However, just because you have compliance, doesn’t mean you will do the others. You can get stuck in compliance and just keep hitting the compliance nail and you don’t mature and grow.”

This, of course, should be particularly relevant to all the Canadian listed companies now facing increasing pressure from the Ontario Securities Commission and the Canadian Securities Administrators to diversify their boards and senior management ranks. It’s not a quota system (not yet, anyway), but the 2014 introduction of the current “comply-or-explain” regime has provided a compliance impetus. The directive was designed to promote more women on corporate boards, and in the short term the scorecard will matter. At the time it was introduced, only 12.2% of directors of TSX composite index companies were female, and 40% had no female representation. The rules were designed to allow companies to make change on their own without forcing the notion of quotas.

However, within the first year, the OSC let it be known it was hardly happy with the results: “Even if it may qualify as compliant disclosure, it’s at best technical compliance and certainly does not reflect our overall objective or desired outcome,” said then OSC chair Howard Wetston. “It’s simply not good enough.”

The regulator has since tempered its comments. Huston Loke, the OSC’s director of corporate finance, says the OSC is “pleased to see the level of engagement and discussion that resulted from the first review of women on boards.” He adds the organization intends to look at the results again at the end of 2016 and “will make special note of year-over-year progress.” Only 15% of boards added one or more women in 2015, he added.

In the longer term, however, those numbers alone won’t determine the policy’s success. Instead, a more important indicator will be how many companies successfully move beyond compliance, to establish a culture of diversity and reap the results. In that sense, it matters less where or how they start and more where they end up.

Take Via Rail, another company that had diversity pushed upon it as a requirement of key stakeholders. An independent Crown corporation, the railway initially took direction from the federal government, according to president and CEO Yves Desjardins-Siciliano. Desjardins-Siciliano, who joined Via as corporate secretary, has seen the board change to the point where women hold five of nine positions.

Desjardins-Siciliano says Via has taken a very top-down approach to diversifying its board, and that has trickled down to the executive and director level. Via now wants the candidates at the director level to represent the company’s diversity objectives.

“If we weren’t going for the diversity candidate I needed to know how the typical candidate was better than the diversity candidate,” he says. “What happens is a majority of appointees have been diversity candidates. It is a matter of stating the intent and taking steps to make sure that intent is considered instead of just having nice words and perpetuating the glass ceiling or whatever other status quo there is.”

And in his way of thinking, a company has to “keep the pressure on,” and focus on diversity as a fundamental tenet of the business in order to be successful.

That leadership approach is also integral to the accounting giant KPMG’s efforts, where its CEO, Bill Thomas, co-chairs the diversity initiative, and Mary Lou Maher operates as the organization’s chief inclusion officer. Maher says organizations need someone driving the diversity agenda in order to make it successful.

“Everyone gets busy and puts their head down and is dealing with their business,” she explains. “Someone has to deal with it. I look after it—right down to the partners and how we deal with that. Someone needs to make it their day job. You get people who are quiet, not reluctant. And you need to focus on those. And we have them and we just try to keep working on them.”

But truthfully, Maher sees it as simply a pragmatic business necessity. Massive companies like KPMG, or Canadian banks like CIBC, need to readily fill their ranks with new recruits at all levels. Maher says companies benefit from having a bigger talent pool if they show diversity at the top of the food chain as it makes their organizations more attractive to today’s top job seekers. And increasingly KPMG is seeing demands for diverse work teams in the requests for proposals that it answers.

“If you want a talented executive committee, 50% are going to be women,” she explains. “If you don’t have that you’re leaving behind some talent. I’m an accountant by trade, and that doesn’t make business sense.”

Some companies are looking to ingrain the culture of diversity into their organization early on. Kevin Patterson, chair of gender diversity at CIBC (TSX:CM), and executive vice-president of technology and operations, says the bank is trying to show it has a diverse culture by speaking to universities. The bank has done classes at Rotman at the University of Toronto and Ivey at Western University as a means of setting the tone for its position. Certainly part of this is to show the bank is forward-thinking when it comes to recruiting, Patterson admits, adding the bank has a long-term perspective on this.

He says current students have a very different view of diversity and its role in the workplace and in order to attract the best candidates, the bank must show that it is being proactive. “These are generational things,” he says. “If I think about where the intake is from various positions in the company or the board, I recognize we have a pipeline issue.”

He points to the 2011 CIBC board appointment of Katherine Stevenson as an example. The bank, Patterson says, was interested in two key areas when it selected Stevenson—a female director and one with information technology experience. That’s a challenge considering the IT sector is under-represented when it comes to women. Patterson says CIBC hopes it can help change that, and in turn add women to leadership roles in IT at the bank.

“The amount of time we set in these activities sets the right tone,” he says. “It sets the right tone in the marketplace and is a reflection of your employee base and client base. And those students are asking all of the right questions.”

For companies that can’t seem to get past the compliance stage, the issue is often a lack of such clear leadership or vision. You don’t get a culture shift if it’s obvious what you’re doing is merely to abide by the rules. Says Tapia: “The most inspiring uplift, and where you can really get a lot of energy behind it is when you see that this is really going to help your business.”

WHILE MANY SAY they can trace the financial benefits of diversity to a company’s balance sheet (see sidebar at bottom), those who spoke with Listed feel there are more nuanced effects felt from the board through to the executive and employee level, and even when it comes to hiring new recruits. Companies that seek more diversity are also creating a corporate environment where different types of questions are raised at the highest levels and where a wide variety of people with different experiences raise those issues.

Governance specialist Carol Hansell, principal with the Toronto firm Hansell LLP, has been studying the notion of “cognitive bias,” and how diversity affects boards when it comes to this issue. Cognitive bias is when people with the same backgrounds come together and tend to have similar perspectives developed from their common backgrounds. This often manifests itself in a group of people having similar ideas. Hansell says when it comes to corporate governance, this is more common than some would acknowledge. Historically speaking the cognitive bias has been led by a group of white men, educated at the same schools, playing golf at the same clubs, and often having similar outlooks on life and business.

Bringing together a board with different backgrounds and perspectives helps when fashioning different ideas for the company and recognizing the changing perspectives of customers and clients.

“One of the positive things coming out of diversity is that a different collection of thoughts come to the table,” she says. “While being respectful and constructive in the boardroom is always positive, having a difference in opinion is important.”

That puts the onus on the board chair to be able to work as a mediator who can take the thoughts of various groups and make something constructive from it.

“A diverse group is harder to manage—you need a good chair—but the questions and comments from a diverse group are better,” says lawyer Richard Leblanc, a governance expert who teaches at York University. “It brings up a more diverse set of opinions. The people who have diverse backgrounds and have a seat at the table, ask different questions and raise issues a white middle-aged man will not raise. I’ve seen it time and again.”

Is there any way of measuring the corporate cultural impact of having a variety of voices in a company’s leadership? Via’s Desjardins-Siciliano says his experience suggests there is—and it is one that will eventually trickle down to leadership and other parts of the company. “It is a tricky question,” he says. “The difference I’ve noticed is the tone and manner of conversations, at least in my experiences.”

For Hopkins, most recently chair of the Cameco board’s nominating, governance and risk committee, this year’s annual meeting in May marked the end of her tenure as a director. Removing herself has allowed Hopkins to reflect. She says the changes she’s witnessed at Cameco are enormous, adding that she feels her male colleagues also recognize the benefits of a diverse board and corporate culture. She recalls a board meeting where an issue was discussed extensively and after a decision was made, a male director took here aside.

“He said, ‘I have to give credit to the women members of the board, who took on the issue and wrestled it to the ground. Thank you, because I’m not sure the male directors would have done this,’ ” Hopkins recalls. “I think that shows there are some real benefits to gender diversity and having a diverse perspective.”

It also shows that change is being accepted as making for better corporate governance, and in turn, better companies.

“Diversity was a proposition that was considered a little bit crazy 20 years ago,” she says. “It is now considered the best way to construct a board and run a board—that’s an enormous change.”

Sidebar:

Yes, diversity pays

More research finds diverse boards and companies have outsized returns

Though there’s still some debate on the matter, it would appear that kicking down the first hurdle to diversity—adding a proportionate number of females to a board—brings significant fiscal rewards for a company. Catalyst, the nonprofit with offices in Canada and the U.S. with a mission to accelerate the placement of more women in the workplace, says its studies show clear bottom-line benefits come from diversity. The organization says companies with more women on their boards outperformed those with the lowest number by 53% when it comes to return on equity. On return on sales, that number is 42%, while return on invested capital is 66% greater.

When it comes to broader diversity, the numbers still support the notion that having a mix of gender, ethnicity and sexual orientation leads to a more productive company. A McKinsey & Co. report, which appeared last year, found that the most racial and ethnically diverse businesses were 35% more likely to have financial results that were better than the medians in their sector, while companies that are in the top quartile for gender diversity are 15% more likely to outpace their industry medians.

Interestingly, according to McKinsey, it is clear that diversity actually provides a financial benefit for a business: “The unequal performance of companies in the same industry and the same country implies that diversity is a competitive differentiator shifting market share toward more diverse companies,” the report says.

Photography by David Stobbe

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