Board Monitor Canada 2020

Financial expertise and gender diversity were top priorities for boards as they nominated new directors to help them meet increasing demands; they will need all that expertise and diversity, and more, to thrive in 2020.

In 2019, boards were facing a range of competing expectations for the new members they would add to meet their ever-growing remit. Modern boards are expected to possess significant expertise in areas as specialized and diverse as digital transformation, cybersecurity, corporate reputation management, sustainability, and social media, to name just a few, and also include diversity in terms of gender, racial and ethnic background, age, and national origin, among other characteristics.

Most corporate boards in the 15 countries we study¹ made some progress in adding new members with diverse backgrounds and skills. For example, over half, or 52%, of non-executive director appointments in Canada were women, up from 32% in 2018. Many boards around the world also continued to add more traditional directors. This includes people with prior board experience—68% of appointments in Canada—or prior experience as a CEO or CFO. Though such directors don’t as often add diversity in other areas, their experience is particularly valued by nominating committees when companies face significant enterprise risk.

Among the characteristics of new directors we have been tracking, we note a few trends among new directors globally, which are somewhat at odds with each other.

Some progress on diversity

• Women continue to make significant gains among newly added directors compared to previous years. Last year was a year of significant progress for the appointment of women to Canadian boards, with 26, or 52%, of the director seats filled going to women, up from 32% in 2018.
• Progress on racial or ethnic, nationality, and age diversity has been disappointing, with little progress to report anywhere in the world. Half, or 25, of the seats filled last year in Canada went to non-nationals, up four percentage points from 2018.
• The range of functional experience on boards has increased, with a corresponding decrease in CEO experience. In particular, digital expertise, now essentially a given on boards, trended highest. With sustainability and cybersecurity rising as central concerns for companies, boards also focused on adding experience in these areas.

A continuing preference for traditional experience

• First-time directors are still not as common as experienced ones, despite boards’ stated focus on increasing diversity.
• Financial expertise and experience in financial services sectors remained highly sought-after backgrounds.
• Though the proportion of directors with CEO experience has continued to decline annually, it remains the most common type of prior expertise, followed by CFO experience.

Simply ensuring a board has an appropriate mix of perspectives is just the start. To be highly effective, a board must be clear on its purpose: what it stands for as an entity and whom it represents in a global society. Boards must also align on how they will serve as an underpinning for a purpose-driven, socially responsible organization that delivers value to a wide range of stakeholders. And boards must have a culture and processes that ensure they can work well together. In 2020, with the added pressure from economic and societal volatility, fractured or dysfunctional boards present more risk than ever before.

The solution is inclusion broadly defined. Many boards think of inclusion particularly in relation to their significant efforts to add diversity, but today, boards will benefit most from moving beyond diversity to ensuring that every member is able to contribute fully, regardless of the board’s traditional norms or habits, varying personalities, inherent biases, or for any other reason. (For more on Heidrick & Struggles’ thinking on board dynamics, see Future-Proofing Your Board.)

In this report, you’ll find the data and our observations on the 2019 class of directors for companies in the Toronto Stock Exchange (TSX 60) and some expectations for 2020.

Acknowledgment

Thanks to the following Heidrick & Struggles colleague for his contributions to this article: Tim Jensen.

Reference

¹ Australia, Belgium, Brazil, Canada, France, Germany, Hong Kong, Ireland, Netherlands, New Zealand, Portugal, Singapore, Spain, United Kingdom, and United States are included in our studies of boards.