Is diversity progressing fast enough?

Rosa van den Beemt shares the learnings and progress of her team’s engagement work on diversity and inclusion over the past year.
August 2021
Rosa van den Beemt

Rosa van den Beemt

Vice President, Responsible Investment Analyst
Rosa van den Beemt, Vice President, Responsible Investment Analyst, BMO Global Asset Management, shares the learnings and progress of her team’s engagement work on diversity and inclusion over the past year, including case studies and important next steps every institutional investor needs to be aware of now.

Moving diversity & inclusion forward across Canada

After a turning point year that pushed diversity and inclusion (D&I) to the top of corporate agendas – for companies and asset managers alike – what was the real impact on our progress as an industry? What can institutional investors expect going forward?

To expand D&I beyond gender alone in Canada, and advance the market forward, our Responsible Investing (RI) team actively engaged with over 100 listed issuers in 2020, specifically around the topic of board diversity.

Now that the Canadian 2021 proxy voting season just about over, we’ve seen several positive developments, including companies that have prioritized D&I at the board level, and across the entire organization, providing actual data points and targets. While some were already required to disclose this information under the Canada Business Corporations Act, others did so voluntarily – driven by both investor and societal pressure. Especially after the Black Lives Matters movement in 2020, there is now a spotlight on companies to show their progress and actualize their verbal commitments through programs that promote equity and equality.
Already, we have seen a variety of different approaches to tackling racial and ethnic D&I on boards, with some focused on increasing and reporting on visible minority representation as a general category, while others addressed more specific underrepresented groups, with some going so far as to break it down by ethnicity and other identity groups. As companies have different stakeholders bases and operate in different geographies, this does not come as a surprise – but it does make it more challenging to easily compare and contrast data. We anticipate a case-by-case approach will be required until there is greater harmonization, as mandated by upcoming regulation, for example.

In Ontario, the OSC is currently seeking feedback on a proposal to mandate TSX-listed companies to set their own targets (rather than mandating quotas) to advance minority representation at leadership levels, including BIPOC (Black, Indigenous and other People of Colour), LGBTQ+, and people with disabilities – and report on progress annually.

In practice: The different D&I approaches

Loblaw and Air Canada, for example, are two Canadian companies that actually set an explicit target for their board diversity goals beyond gender. Loblaw updated its policy to state that by 2024, people who identify as visible minorities will comprise at least 25% of the board’s directors. This is one of the more explicit and progressive targets we have seen this proxy season, which clearly articulates the importance Loblaw’s board places on advancing diversity beyond gender to more adequately reflect its Canadian customer base. Meanwhile, Air Canada has taken a different approach by committing to have – at a minimum – 3.5% of its board and executive roles held specifically by Black leaders by 2025, which is in line with the demographic representation of Black people in Canada, and in part driven by the company’s signatory to the BlackNorth Initiative CEO Pledge. This initiative, launched by the Canadian Council of Business Leaders Against Anti-Black Racism, gathered close to 500 CEO signatories in one year.

Suncor, as another example, re-evaluated and refined its employee selection development processes in 2020 to help identify and remove systemic barriers to advancement for minorities, actively recruiting Indigenous candidates, while also appointing one new Indigenous director to its board (it has had Indigenous representation since 2000). The company has set building greater respect and mutual trust with Indigenous communities as its first-ever social goal, and received the highest ranking by the Canadian Council for Aboriginal Business (CCAB) Progressive Aboriginal Relations (PAR) program.

Unfortunately, the current reality is that Indigenous people make up close to 5% of the population, and yet they constitute far less than 1% of senior executives and board members. Many structural barriers still need to be overcome. The recent uncovering of Indigenous residential school victims across Canada demonstrates how important it is to listen to the voices of people who have been structurally marginalized, as Indigenous people have long spoken out about what has happened to them.

In moving towards reconciliation, we believe it is essential to create a culture of ongoing consent and work together with Indigenous people, especially around business decisions that impact their communities and land. Of equal importance is that Indigenous people are well- represented in leadership levels at companies where a material part of the workforce is Indigenous, or where part of the business strategy relies on natural resources, or are land-intensive, such as mining, energy or forestry. One way of working towards economic reconciliation is by creating mutually beneficial partnerships between corporations and Indigenous communities, whereby each party owns an equity stake. These ownership structures are becoming more common in the renewable energy sector in Canada. We have also seen increased ongoing consultation of Indigenous leaders within corporate-Indigenous relationships. Earlier this year, CN Rail established a new Indigenous Advisory Council, an independent body designed as a forum for constructive dialogue that advises the board on the company’s relationship with the broader Indigenous communities.

Our engagement with CN Rail is a good example of the importance to not just focus on how much board diversity there is at a given company but also on the mechanisms for how they get there. We’ve engaged with CN Rail many times over the past three years, to encourage them to refresh their director tenure policy and board renewal processes since there were a number of directors who had been serving for an extended timeframe. Implementing director term limits is a smart way to plan for and ensure board refreshment, making space for new and diverse perspectives. CN recently announced an update to their governance policies that better aligns with our objectives, setting a maximum director tenure of 14 years. The railway has also set a new gender board diversity target to reach parity by the end of 2022, and disclosed data on the current representation of Indigenous, Persons with Disabilities and Visible Minorities across its board and executive officers.

What to expect next

Looking forward, our RI team is proactively working to advance the disclosure of diversity statistics at the board and workforce level, and target those companies that are now lagging behind. As part of our efforts to create a tangible framework for engagement that reflects the broader D&I definition, from 2022 onwards we will be voting against chairs of nominating committees when there is no ethnic or racial diversity on the board, and no commitment to address that gap. In addition, BMO Global Asset Management will work closely with policymakers and investor networks to collaboratively address next steps. How have we held up to the commitments made on the Canadian Investor Statement for D&I? What challenges have we encountered? How can we continue to improve practices at both our own organizations and at the organizations in which we invest?

We strongly believe that in order to eliminate barriers to inclusion, corporations must first consult the people who have been affected by bias and racism. What are their experiences? How can the company better support their wellbeing and career advancement? One best practice we have seen emerging is the formation of either internal or external advisory committees consisting of employees or other stakeholders with a diverse background. Another practice we encourage is eliminating bias from the interview process. This can be done by, for example, asking search firms for a certain percentage of diverse candidates, or ensuring there are diverse representatives present at job interviews for new hires to help create a more inclusive space and counter unintended racial bias.

And then there is the issue of fair pay, and how this intersects with race and ethnicity. The COVID pandemic has put a spotlight on the low wages of essential workers. Investors are taking notice. At the Walmart’s Annual Shareholder Meeting, for example, the company received a shareholder proposal asking to reviewing how it is paying its hourly associates, a significant proportion of which are Black, and whether this low level of pay is consistent with Walmart’s public statements around racial equity. There have been several other shareholder proposals filed at U.S. companies, asking for racial equity audits, and we expect this trend to continue.

Now that companies are committing to more robust work, the next step for us is assessing whether these new commitments are making a difference, and if they are not, reinforce our views through voting rights where appropriate. How can we assess whether there is real change at a company? We suggest investors examine employee survey results, turnover and retention rates and pay data across different levels of the organization to see: how inclusive is the company’s culture? Are diverse workers staying put and having equal opportunities for advancement? Is there movement into management? Is there equal pay? We expect that companies will continue to provide increasing visibility into workforce data in the next few years, either driven by evolving regulation or investor expectations. BMO GAM is also an investor supporter of the Workforce Disclosure Initiative (WDI), which aims to improve corporate transparency and accountability of workforce issues, including diversity, equity and inclusion. We actively engage the companies we invest to encourage them to take part in the WDI.

The most consequential – change we’ve seen this year is a general shift in awareness from companies about the importance of addressing D&I. In most of our recent conversations with boards or senior management, we no longer have to make the investor case for diversity by helping them connect the dots between diversity and increased performance, or explain why there can be no true meritocracy without D&I. The shocking data on the lack of ethnic representation in Canadian corporate leadership, evolving expectations from employees, customers and investors, disproportionate COVID effects, and movements like Black Lives Matter have accelerated in one year what has been brewing for many. When all stakeholders come together around one issue to form a unified voice, change happens much faster, and that is why we must continue to work together to ensure it is long-lasting.

Moving the Needle for D&I in Canada

BMO Global Asset Management is the proud recipient of the 2021 Responsible Investment Association (RIA) Stewardship Leadership Award, recognizing our work to expand – and evolve – D&I in Canada beyond gender alone. The award is a testament to our steadfast RI commitment over three plus decades, and our belief that as trusted stewards of capital, we have both influence and responsibility. Sharing our learnings and expertise with the wider community, engaging with companies and voting impactfully, is how we catalyze change and drive necessary improvements in global standards.

We also take initiative to examine ourselves as an organization, understanding that we are just as accountable as the companies in which we invest. BMO’s Zero Barriers to Inclusion 2025 is a multi-year strategy focused on providing access to opportunities and enabling growth, particularly for groups facing systemic barriers including Black, Latino and Indigenous communities, as well as LGBTQ2+ and persons with disabilities. Our representation goals, which came into effect November 1, 2020, include 31% People of Colour in senior leadership roles in Canada (3.5% black), and 1.6% Indigenous Peoples across our workforce in the country.


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