Canadian Corporate Governance, Law and Racial Diversity

This research project will begin an inquiry into the intersections of Canadian corporate governance, law and race. Although racial/ethnic groups constitute a significant percentage of the Canadian population, these groups are notably under-represented in the key decision-making positions of our corporations. In 2004, 300 Canadian firms were surveyed on the diversity of their boards of directors and top management. Of the responding firms, just 3 per cent had a visible minority chief executive officer. Further, of the approximately 900 senior executives in the surveyed firms, just 3 per cent were visible minorities. While survey respondents explained these numbers as a function of the lack of qualified acial/ethnic minority candidates, this response is suspect given a 2004 federal government report which found that less than half of racial/ethnic minority candidates who are qualified for senior management positions actually hold such positions.

This project will proceed in 4 stages. First, I will build on my preliminary review of the literature and conduct a comprehensive review of the growing body of social science/economic literature that attempts to establish a correlation between board diversity and firm profitability. For example, it is increasingly argued that diverse perspectives lead to a fuller consideration of potentially relevant issues and thus higher quality decisions/better monitoring. Diversity may also have a beneficial ninfluence on employment dynamics within a firm, potentially decreasing attrition levels and positively impacting worker efficiency. Further, diversity may increase a company's market value by allowing it to better address the needs of diverse external constituencies.

Second, I will analyse legislative measures that have been undertaken in other jurisdictions in an effort to address disproportionate board representation. For example, in response to the under-representation of women in corporate boardrooms, particular countries have required companies to pursue gender diversity at the board level. Most notably, in 2006 Norway passed legislation requiring that 40 per cent of the board seats of publicly traded companies be filled by women within a two year period.

Third, I will interrogate the market-based rationales for board diversity. The argument regarding an enhanced ability to address the needs of diverse external constituencies serves as an interesting case study of how these rationales are layered in complexity. This argument presumes that racialized directors will better connect with/understand racialized constituencies (e.g. customers, suppliers). It has been suggested that this is inaccurate given, for example, class differentials between these groups. Even if the argument proves valid, a deeper concern lies in how its implications are operationalized. Given their apparent expertise, it is possible that the roles of racialized directors will be limited to interacting with constituencies from their particular ethno-cultural community. This sort of categorizing may serve to ultimately disempower the director. Rather than encouraging racialized directors to be fully engaged participants on the board, they may be left marginalized, without a sense of place in the broader organizational structure.

Fourth, having canvassed the legislative activity in other jurisdictions, and having unpacked the relevant market-based rationales, I will consider precise recommendations for legislative/regulatory reform in Canada. This will involve assessing the viability of various strategies, including: (1) following the Norwegian model discussed above; (2) enhancing the potential for diversity-related shareholder proposals; and (3) facilitating interpretive guidance from the Canadian Securities Administrators as to the responsibility of reporting issuers to disclose to investors material information relating to board composition and its relationship to business impact.

This project is funded by a Borden Ladner Gervais Research Fellowship(2008).

* Citations omitted, a vailable upon request.

Collaborators: 

Anna Gersh, LL.B. Candidate, Osgoode Hall Law School, York University, Toronto

Leader Profile: 
Professor Aaron A. Dhir , Osgoode Hall Law School, York University, Toronto