Corporations using 'merit'-based language to avoid gender diversity on boards

May 17, 2021

By Bruce McConomy, Professor, Accounting; KPMG Fellow in Accounting

There has been significant pressure on corporations to increase the representation of women on their boards of directors. In Canada, legislation requiring publicly traded corporations to disclose their policies related to increasing the gender diversity of boards was introduced in 2014. In short, companies must comply or explain. That is, companies that do not have a policy relating to the identification and nomination of women directors and that have not instituted targets for women directors need to explain why.

In my recent paper published in Critical Perspectives on Accounting, “Gendering merit: How the discourse of merit in diversity disclosures supports the gendered status quo on Canadian corporate boards,” my co-authors Walid Ben-Amar, Merridee Bujaki and Philip McIlkenny and I examine diversity disclosures by Canadian corporations and show how references to “merit” and “diversity” are used strategically by many corporations. We find that corporations referring to merit in their disclosures tend to have fewer women directors than corporations that do not mention merit. In addition, we assess the readability of the disclosures. We find that those referring to merit tend to be less readable, suggesting efforts to obfuscate.

Since Canadian diversity legislation was introduced in 2014, there has been very little change in the percentage of women on corporate boards. We found an increase from 7.9 per cent to 9.7 per cent in our sample of non-TSX60 firms, and an increase from 22.2 per cent to 25.5 per cent in TSX60 firms between December 2014 and December 2017.

Until the lack of progress in board diversity is challenged, corporations will have little incentive to change the status quo and enhance their diversity. Overcoming corporate resistance to change may require a range of innovative practices by corporations and regulators, up to and possibly including mandating levels of women’s representation on corporate boards.

We hope our research helps to advance equality and equity by exposing and challenging the language of the disclosures. We also hope that encouraging a critical reassessment and reconceptualization of the concepts of merit and diversity will instigate fundamental changes in corporate recruitment, training, development, promotion and appointment practices at all levels so they become more accessible to talented individuals. Individuals, companies and society more broadly could all benefit.

This study and related research are discussed further on my Research Gate page. My research interests are quite varied, but a continuing theme is assessing the impact of voluntary and mandatory disclosures made by Canadian corporations.

Acknowledgements: We thank the CPA Ontario Centre for Capital Markets and Behavioural Decision Making at Wilfrid Laurier University and the CPA Canada Accounting and Governance Research Centre at the University of Ottawa for financial support of this project. We also thank Alexandrea Sheehan, Aissatou Fall and Eric Molinari for their excellent research assistance.