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Symposium 2011

Proposal - Board Diversity and Corporate Governance

The Challenge

The global financial crisis has led to demands for greater transparency in corporate practices. But less attention has been paid to whom the players should be in this new environment. Corporate boar ...

The global financial crisis has led to demands for greater transparency in corporate practices. But less attention has been paid to whom the players should be in this new environment. Corporate boards across the world generally have a predominance of male directors. Research shows a lack of diversity in terms of gender, race/ethnicity and international expertise at a time when “global” defines the business climate.

European countries have led the most dramatic response to board diversity by instituting quotas for women on corporate boards. Norway led the way in 2003 by requiring 40% of board seats to be held by women. They were swiftly followed by Spain (2007), Iceland (2009), France (2010) with the Netherlands (2010) and Italy (2010) having similar laws passed in their lower houses. Quotas on state-owned companies are also already in place in South Africa, Israel, Denmark, Finland, Iceland, Ireland, the cities of Berlin and Nuremberg in Germany and the province of Quebec in Canada. The European Parliament is also considering a region-wide quota in the future, partly as a result of the momentum in its member nations. In addition, there is a parallel move on the part of Corporate Governance Commissions and Stock Exchanges in some countries to require board diversity information as a listing requirement and as a component of good corporate governance. In the mantime, U.S. institutional shareholders — large pension funds, for example — are creating databanks of potential board directors whose names they would propose for board seats in companies where they have major holdings. All these efforts have not changed board composition dramatically except in the Nordic economies while there has been a doubling of women directors in France and Spain. The question then is how to accelerate board diversity without legislative mandates? If quotas are proven effective in increasing women's presence on boards, will that result in more women in senior management? Will these changes impact on the bottom line? What do we want from board directors in the future?

To summarize:

  • Legislated mandates or quotas for women directors
  • Corporate Governance Commissions and Stock Exchange requirements regarding board diversity
  • Institutional Shareholders' push to nominate and to create their own database of diverse directors.
  • More research on the business case concerning board diversity and the relation between such diversity and financial performance

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