Sylvia Chrominska Speech - November 2, 2010
An address by Sylvia Chrominska
Group Head, Global Human Resources & Communications
Presentation to the participants of the Women and Corporate Governance conference held by the High Commission of Canada in Trinidad & Tobago
Port of Spain, Trinidad and Tobago
November 2, 2010
What an honour it is to join Her Excellency Karen McDonald, High Commissioner of Canada to the Republic of Trinidad and Tobago, my fellow presenters, and all of you at this conference on the growing role of women in corporate governance. Thank you for inviting me, and for such a warm welcome.
There is no question women improve the way organizations operate - especially when they get the opportunity to do so at the highest level, the boardroom.
Some reports tell us the issue of women's representation on corporate boards is evolving - from one of gender equality, to a more focused examination of effective corporate governance and financial performance. And, I would agree with that. It is not an issue of fair hiring practices or corporate image, it is about shareholder returns.
But progress is too slow. There are still significant hurdles that women must overcome to get access to board seats. We must take on this challenge and overcome these obstacles. And we must do so quickly and together if we are to move the dial and make a difference. Having said that, based on how far we've come to date and current projections for the future, if we just sit and wait for this to happen, it will take years, if not centuries, to get to 50% representation on corporate boards.
Let's take Canada for example. From 2005 to 2009, the number of female seats on corporate boards in the top 500 Canadian companies increased by half a percentage pointper year, from 12% to 14%. (Source: Catalyst Census: Financial Post 500 Women Board Directors, 2010, Catalyst Canada.)
At that rate, it will take until 2082 for Canadian women to hold half the board seats in these companies.
Waiting 70 years or more to get to equal representation is not good enough – it's simply too long. We need to make change happen now, for ourselves and to ensure that the next generation will not have to face the same barriers.
Here in Trinidad and Tobago, I know you have to contend with many of the same issues as Canadians do, and I challenge you to position yourself to take your place at the table.
The issue of corporate governance has received significantly increased attention over the past decade, I think because of some very high profile business failures. In 2002 we saw an unprecedented number of corporate scandals such as the Enron, Tyco and WorldCom. More recently, during the crisis, many financial institutions failed or were bailed out, including huge ones like Bear Stearns, Fannie Mae, Lehman Bros and AIG; just to name a few.
Of course, there were many factors that contributed to the crisis. It's fair to say though, that part of the blame can be attributed to failures in corporate governance. Specifically, weak board oversight, poor risk management and executive compensation practices that encouraged aggressive risk-taking.
Firms sacrificed long-term investments to meet short-term earnings targets. Compensation programs emphasized annual bonuses and motivated bad behaviours in management, which ultimately led to large losses.
To explore the role of leadership and governance in the economic crisis, Canada's leading business school, the Richard Ivey School of Business, met with senior business, public sector and not-for-profit leaders around the world this year. They asked more than 300 business leaders if better leadership and governance could have prevented the economic crisis. The consensus was yes.
Their report called "Leadership on Trial: A Manifesto for Leadership Development" - zeroed in on three areas of leadership failure:
- Character, including poor values and ethics, personality traits such as overconfidence and hyper-competitiveness.
- Commitment, as it relates to bottom line considerations and the responsibilities to community and society.
Since an organization's board of directors is responsible for asking the right questions and challenging management, these failures, in some way, point to poor governance on the part of the board. I say that because, ultimately, it is role of the Board of Directors: "To act as fiduciaries, overseeing the company's business affairs on the behalf of shareholders in the best interests of the corporation."
Under the watch of poor governance in the financial sector, mistakes occurred that set about a downturn that rippled around the globe.
How quickly and thoroughly the economy recovers is yet to be seen. We have entered a 'new normal' where the business landscape has changed fundamentally. It is a time when we are learning from the past and rethinking the way we do things so that we're prepared for the challenges and opportunities ahead.
For companies that lead and drive the economy, effective corporate governance is paramount today, and will only become more important in the future. Certainly, one obvious way to strengthen governance is for companies to draw from the broadest and deepest talent pool. The way to do that is to strive for greater diversity, and increasing women's representation plays a key role.
As I highlighted earlier, women's representation on corporate boards is low; but some countries are higher than others. Three Scandinavian countries are at the top of the list with the most female board representation:
- Norway at 34.3%
- Sweden at 23.9%
- Finland at 23.4%
- Philippines at 19.1%
- South Africa at 15.5%
- U.S. at 15.2%.
(Source: Women on Boards, 2010, Catalyst Canada.)
In Canada, where women make up just under half of the workforce, women hold only 14% of board seats among the top 500 companies. Among these types of companies, over 40% had no female directors. (Source: Catalyst Census: Financial Post 500 Women Board Directors, 2010, Catalyst Canada.)
I wasn't able to find sufficient data tracking women on boards in Trinidad and Tobago. However, I did find out there is a study being conducted this year that is looking at women on boards and commissions in this country, but the results are not yet available.
From a geographical standpoint, the closest available data was from Jamaica, where women are represented on 16% of private sector boards and 33% of public boards. According to the Women's Resource and Outreach Centre in Jamaica, progress has been slow in the last ten years — with only a 2% increase on private boards and 4% increase on public boards.
Clearly, the under-representation of women is really a global issue. Having established that, let's look at the business case for the need to change.
In 2007, important findings were reported by Catalyst, a global organization that works to build inclusive workplaces and expand opportunities for women and business. On average, Fortune 500 companies with more women on their board of directors outperformed those with the lowest.
- Return on Equity is 53% higher
- Return on Sales is 42% higher
- Return on Invested Capital is 66% higher
Digging deeper, performance was stronger than average at companies with three or morefemale board members.
And these results held up across industries: from health care to finance to information technology.
Remember, these are companies that have three or more female board members, which is relatively strong representation. I believe this speaks to the importance of having a critical mass, where several women have a stronger impact on decision-making than, for example, just one woman with a single voice
The Conference Board of Canada published a study in 2002 that draws a correlation between female board representation and improved corporate governance.
In boards with three or more women, over 90% of boards advocated conflict-of-interest guidelines. This compares to less than 60% of boards with only male members.
In boards with two or more female members, about three quarters of them conducted formal board performance evaluations. Less than half of boards with only male members do this.
Their study also found that boards with higher female membership tend to provide formal board orientation programs.
All of these things can contribute significantly to more effective governance.
So what are the reasons why organizations are failing to incorporate more women on their boards.
There are several that need to be challenged:
- Boards are only looking at candidates at the CEO level.
- They are looking only at their existing networks - where we know access by women is limited.
- Boards primarily consisting of men are looking for candidates who are like themselves - men.
In Canada, over 70% of board members report that the most common method used to recruit new board members was by recommendation from existing directors – not through formal recruitment tactics. It's a vicious cycle. The second and third most common methods were identification by the board's nominating committee or by the CEO and other insiders. Using a search firm, landed in a distant fifth position. (Source: Directors Survey in collaboration with the institute of corporate directors, 2009, Clarkson Centre-PricewaterhouseCoopers.)
For women, this means making sure we are part of the right networks. And we need to make sure we are prepared to fulfil the role of a director when companies begin looking beyond CEOs and traditional networks for available talent.
Another explanation for the lack of female representation on corporate boards is that board members are usually recruited from the same small pool - that also suffers from low female representation - at the highest levels in their organizations. In fact, in 2007, 20.2% of vacant board seats on Canada's top 500 companies were filled by people who already held at least one board seat on one of these companies. (Source: Catalyst census of women board of directors of the FP500: Voices from the boardroom, 2008, Catalyst Canada.)
Companies need the best and the brightest – of both genders.
If we look at buying power alone, the customer base of many companies is female, as women control more than half of consumer dollars. In the U.S., for example, recent figures indicate women control about 70% of household spending. (Source: Boston Consulting Group, 2009.)
Companies who do not include women on their boards are limiting their perspective and are at an obvious disadvantage.
Research shows that board diversity pays off. People from different backgrounds will think differently about the same problem, resulting in increasing innovation, strengthening problem solving, risk management and organizational performance. With an increasingly complex global economy, the ability to draw on a broad range of backgrounds, experiences, viewpoints and skills is critical for a company's success.
In addition to the business case for diversity, there continues to be pressure from policy makers, regulators and others to increase female representation and the diversity of their boards.
Some countries have gone so far as to mandate or legislate quotas.
- In Norway, as a result of law (which requires 40% representation by women on boards), the percentage of Norwegian board members who are female jumped from less than 10% in 2002 to approximately 34.25% today, the highest such percentage in the world.
- And while Norway's quota system initially generated a lot of debate, the results speak for themselves and Norwegians no longer debate whether women can contribute in the boardroom.
- A very significant outcome of the quota was that once companies were required to include more women, they became more focused on the qualifications for directors. And once qualifications were written down, a common standard for qualifications then applied to the men serving on the board.
Other countries are adopting similar practices:
- In Canada, the Canadian Board Diversity Council has as its goal to increasing the representation of women on the boards of the top 500 companies to 20% by 2013.
- Spain and Sweden have both established quotas that will come into effect in 2015.
- In France, a bill is being considered to increase the representation of women on boards to at least 20% within three years.
- Australia has adopted an "if not, why not?" rule. Companies must disclose their diversity efforts and, if not achieving sufficient diversity, explain why not.
- Germany has no gender quotas, but requires annual disclosure of failure to comply with recommended diversity targets for various types of boards.
In the U.S., companies are also required to disclose information on the diversity of their corporate boards, and there is increased scrutiny on the experience and background of directors.
Organizations are now required by the Securities and Exchange Commission to provide their investors with greater insight into their considerations for nominating directors.
The 30 corporations in the Dow Jones Industrial Average, as well as five additional financial institutions, recently disclosed information about the importance they place on diversity in their boardrooms. All said they consider diversity in identifying nominees for director. By diversity, they meant experience and background as well gender, race, ethnicity and other factors.
These are positive developments, but what's disappointing is that only one company has a formal policy on board diversity.
Although, in a survey of Canada's top 500 companies by the Canadian Board Diversity Council, which was completed as recently as a few weeks ago, 16% said their board has a diversity policy on board membership. The difference is most likely due to the regions and types of companies surveyed, but I expect that with this increased transparency, companies will begin to adopt formal policies with more specific definitions of diversity.
Having women and minorities in key positions is a clear demonstration to investors, employees and other stakeholders that the company is serious in its dedication to diversity – that they are walking the talk.
This is important because a board is partly responsible for setting the tone at the top and influencing the culture throughout the organization. Management teams who see that the board has made a serious commitment to diversity at the highest level will be more likely to adopt and disseminate that focus throughout the organization.
The issue of establishing legislated quotas or targets is a controversial one, with strong supporters and critics.
What is positive is that there is a definite movement to change the status quo.
With the data that draws the relationship between diverse boards and improved corporate performance, it's clear why women should have a greater role in the boardroom. Diversity is a strategy for companies to win in their markets and enjoy sustained profitability.
Let's look at the distinctive contributions that women make to good governance, then I'll finish with steps you can take to position yourself for board membership.
Earlier I stated that the role of the board is: "To act as fiduciaries, overseeing the company's business affairs on the behalf of shareholders in the best interests of the corporation."
Recognizing that boards are overseeing the business affairs of organizations in the private, public and not-for-profit sectors, I won't try to capture the full range of accountabilities in more specific terms. But they can involve:
- Overseeing the leadership and participating in decision-making at the top level.
- Evaluating the effectiveness of the CEO and other officers.
- Making sure succession plans are in place for the future leadership.
Ultimately, the board is responsible for the financial health of the organization, so it can continue to pursue its ambitions.
At Scotiabank, good governance, based on openness, integrity and accountability, is absolutely fundamental to the success of our business over the long term.
Scotiabank is very proud to be considered a leader in best practices in board governance, and we continually work to strengthen our policies and procedures.
Our recognized strength in this area has not only contributed to our stability in turbulent economic times, it also helps us build and maintain strong, enduring relationships with customers and other stakeholders.
The Conference Board of Canada's findings on the diversity of the Dow Jones companies included information on the qualifications most commonly used by boards when considering potential board members.
All these companies identified experience in three areas when determining that a director should serve on their board:
- Company's industry or closely related industry
Just under that, 96% of companies identified:
- Finance and accounting expertise
- Outside board experience
- Government, policy or regulatory experience
A similar examination of the most important director attributes was conducted in 2009 by the Institute of Corporate Directors in Canada. They asked 429 directors from diverse sectors and industries to identify the skills and experience they value most in a director.
Here are the top ten, with the percentage of directors who selected each one:
- Financial literacy at 83%
- Independent-minded at 77.2%
- Governance experience at 66.7%
- Industry experience (57.1%)
- Executive experience (51.7%)
- Risk management experience (45.5%)
- Experience on other boards (39.4%)
- Strong network (22.4%)
- Legal/Compliance expertise (17.7%)
- Human Resources experience (16.8%)
I'll offer you one more perspective. With a focus on building high-performance boards, the Canadian Coalition for Good Governance has stated that the single most important corporate governance requirement is to have directors with these four attributes:
- Quality, which is integrity, competence, knowledge, business and industry experience and the motivation to carry out his or her duties in the long-term best interests of the company and all of its shareholders.
- Diversity, meaning having a wide variety of experiences, views and backgrounds, with a reasonable level of familiarity with the company and its business.
- Curiosity, which is a willingness to ask the questions of management that will give them a fuller understanding of the risks and rewards of any proposed plan of action and how it will affect the long-term viability of the corporation.
- Understanding of the legal requirements of the role.
Can you see any areas where women fall short? Right, there are none. There is no logical reason why there are not more women on corporate boards.
In fact, there are competencies more prevalent in women that can contribute to richer discussion and better decision-making.
A study published last October by the Wellesley Centers for Women in the U.S. discovered that women board directors make three distinctive types of contributions that their male counterparts are less likely to make.
- Women display a greater willingness to consider the concerns of a wider range of stakeholders.
- Women display greater persistence in pursuing answers to difficult questions.
- Women take a more collaborative approach to leadership through improved communication.
I hope you can relate to these. These are the types of contributions that you will make as a director.
Let me quickly share with you an observation made by an associate professor at the London School of Economics named Daniel Ferreira. He said that women directors have a better attendance record at board meetings. Interestingly, men on boards with women also have better attendance, suggesting that a woman's presence inspires men to take their board responsibilities more seriously.
Looking ahead, as more women take their place on the board of directors, more data will be collected on the positive effect that women have on corporate governance and, ultimately, corporate performance. I'm confident that results will speak for themselves, that corporate boards will continue to become more diverse, and that gender parity will become the competitive advantage for most successful organizations.
Now is the time for women to make their contribution to good governance, and help organizations reap the rewards of a diverse and inclusive board, to maximize the potential of its members and contribute to the bottom line.
Boards will need to look beyond the C-suite for candidates and demonstrate the importance of seeking gender diversity at the board level by asking nominations committees to seek out female candidates.
Recruiting firms will need to add diversity in their searches by looking beyond the usual collection of candidates.
You need to continue to develop your qualities and competencies and position yourself as a candidate with unique and valued skills and knowledge.
Let me offer some advice on what you can and should be doing today:
- Make sure the experience and knowledge you bring to the table are adding value.
- Focus on the unique qualities women bring to boards:
- A willingness to consider the concerns of a wider range of stakeholders.
- Greater persistence in pursuing answers to difficult questions.
- A more collaborative approach to leadership through improved communication.
- Push yourself to move out of your comfort zone and accept that you have no reason to be shy about your talents and accomplishments.
- Find a mentor who can help introduce you to the ways you can contribute to decision making. As well, finding a mentor that sits on a board can be very beneficial.
- Make sure your network is as broad as possible, where you become part of the network of those who serve on boards.
- Identify what boards interest you and what skills and executive profiles boards are seeking – acquire relevant skills
- Look for opportunities on not-for-profit, community or small company boards - to develop and gain strategic thinking experience.
- Approach finding a directorship as you would finding a job:
- Be systematic about getting to know the right people.
- Develop strategic networks.
- Talk to head hunters, explain to them what you are looking for and your qualifications.
It is up to you to make the most of your talents, and continue to develop them — by seizing the opportunities available and creating new opportunities where you can.
As the world recovers from the worst downturn since the depression, we are facing our greatest challenge - and opportunity - in decades.
We know that good corporate governance is going to be critical not only to corporations' success - but to the health and stability of the entire global economy.
Now is the time when we need our best and our brightest people making the most important decisions. Diverse perspectives and differing strengths bring about good discussions, and most importantly, lead to good decisions. So now is the time that we must capitalize on the contributions women make.
I challenge all of you to think big, act boldly and reap the rewards you will receive by assuming your place at the boardroom table.