Gender diversity on corporate boards won’t happen until we limit terms

Last month brought the news that nearly 20 per cent of Canada’s board members are women. That is a lot better than a decade ago, when it was 12 per cent, but no ovations yet, please – we are making progress much more slowly than others. In 2009, we stood sixth among industrialized countries. Last year, we were 15th.

Sooner or later, though, even this slow progress is going to run up against an opposite force that all the compliance edicts, diversity initiatives and goodwill seem helpless to correct: term limits. Specifically, lack of them.

Just 19 per cent of Canada’s public companies report having any term limits for their directors. The average director’s tenure rose from less than five years in 2009 to 8.6 years in 2013, and on many Canadian boards, you will find at least one who has served for more than 20 years. If there are no board openings to fill, even an overwhelming supply of qualified women will not affect demand for them. This brings me to the programs run by theInstitute of Corporate Directors to train and certify future board members.

The ICD course has graduated more than 1,000 women since 2002. It will cost you $16,950 to take the course next year; when you graduate, you will be able to put “ICD.D” on your résumé and assure nominating committees you are trained in proper governance. But you may wait a very long time just for a chance to be considered for an interview, let alone for an actual position.

Today, the term-limit movement is where the women-on-boards movement was 10 years ago. In late 2013, an Ontario Securities Commission survey of nearly 1,000 TSX-listed issuers found that 82 per cent of respondents had no policy at all for limiting directors’ terms. Yet by this September, nine months into the OSC’s “comply or explain” regime for its new rules requiring companies to report their policies to promote gender diversity, that number had improved by a single percentage point.

The argument for term limits is the same as for increasing the number of women on boards: Companies perform better. Last year, recruiting firm Spencer Stuart looked at U.S. public companies in search of a link between director tenure and company performance. It concluded that those with industry-beating market returns swapped out an average of about one director a year. The worst-performing companies refreshed the least often.

But such appeals to better performance may do little to codify, enforce and shorten term limits. After all, people in power rarely surrender it willingly – especially while they are making tens of thousands of dollars a year in additional income.

So let me propose the Institute of Corporate Directors should be the very people leading their alumnae to the barricades. Right now, the ICD is not in favour of term limits, calling them a “blunt tool … without flexibility, they eliminate effective as well as non-effective directors.”

Agreed. They are blunt and, like any quota system, capable of skewing the marketplace. But so are quotas – yet nine years after Norwegian regulators mandated that 40 per cent of the board members of thecountry’s companies must be women, none of the predicted apocalypses happened. Besides, who says term limits have to be inflexible?

What I do know is that the OSC’s “comply or explain” regime is moving the needle nowhere in bringing new blood and thinking to board decision-making. The ICD is a powerful lobby for corporate Canada. It is time it fought for the rights of its students, members and shareholders.

http://www.theglobeandmail.com/report-on-business/rob-commentary/gender-diversity-on-corporate-boards-wont-happen-until-we-limit-terms/article27612797/

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