As a Canadian corporation, the Canada Business Corporations Act governs the qualification of directors, and what an individual must have in order to not be disqualified to be a director. S. 124 (2) of the CBCA states that a person must to become a director of a company unless that person is: a) 18 years old, b) is found by a court to be capable of managing the individuals own affairs; c) an undischarged bankruptcy; and d) must not be convicted in or out of BC of an offence in connection with the promotion, formation or management of a corporation or of an offence involving fraud.
A significant feature of corporate law is the managerial authority that is statutorily vested in the board. Corporate legislation expressly prohibits the delegation of certain functions to management as outlined in CBCA sections 121(1)(a) and 115(3). Furthermore, Canada is recognized as a unitary system where a single board performs both roles of management and future planning. In many corporate boardrooms, there is a significant lack of diversity.
Definitions of diversity tend to vary among different regulators and companies. Some countries provide a definitive outlook of diversity and even legislate it within corporate governance. However, when there is not adequate regulatory guidance, corporations can define diversity to fit their own agenda. Some companies will then only look to diversity of perspective, or of education, which can lead to issues of ethnic and gender exclusions from firms claiming to be “diverse.”
The lack of diversity on corporate boards is often justified by rationales such as the pool problem. The pool problem states that there is a lack of qualified women and visible minorities hence the disproportionality. However this is not supported by the statistics, a recent federal government study concluded that less than half of visible minorities who were qualified for senior manager positions were actually in those positions. Another psychological phenomenon is the Implicit Cognitive Bias. The unconscious cognitive involvement results in judgments made instinctively and unintentionally. Applying this concept to corporate governance and board composition, high ranking positions are given to those who are perceived to be good leaders. Astonishingly, whitness is associated with being a competent leader. Decision makers prefer whites who are believed to be more effective leaders, and are more likely to be promoted to leadership positions. Cognitive biases can change, when directors become better acquainted with candidates that fall outside the existing leadership paradigm.
There have been a lot of studies done to find a correlation between boardroom diversity and financial performance of a company. The studies done are inconclusive as they show positive correlation in some cases and negative in some, depending on size, type of industry, economic environment and country of the organization being studied. But surveys done by ex and current directors of boards state that day-to-day functioning of board is more productive is boardroom is diverse as group has diverse array of ideas.