In this insightful discussion, Sarah Kaplan examines the importance and challenges of increasing diversity on corporate boards. She highlights how many corporations are lagging in this area due to inadequate regulatory measures and the reluctance to embrace innovative opportunities arising from it. Kaplan argues that proper implementation of regulations, like board diversity disclosures, can spur significant changes that align corporate practices with societal demands for representation and inclusivity.

Corporate leaders are urged to perceive trade-offs related to diversity and environmental challenges as potential innovation opportunities rather than just additional burdens. Kaplan emphasizes that businesses often fail to articulate, understand, and navigate these trade-offs, thus missing opportunities to innovate. She shares examples, like the case of McCarthy Uniforms, showing how addressing such challenges creatively can lead to enhanced product offerings and market success.

Main takeaways from the discussion:

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Key Vocabularies and Common Phrases:

1. representation [ˌrɛprɪzɛnˈteɪʃən] - (noun) - The act of speaking or acting on behalf of someone or the state of being represented. - Synonyms: (portrayal, depiction, embodiment)

Any company that is not moving towards better representation on their boards is going to find themselves behind the eight ball.

2. nitty gritty ['nɪti ˈɡrɪti] - (noun) - The most important aspects or practical details of a subject or situation. - Synonyms: (essentials, core, heart)

Regulators need to think about not just what they're regulating, but the nitty gritty of how they implement it so that it can be effective in driving change.

3. prohibit [prəˈhɪbɪt] - (verb) - To formally forbid something by law, rule, or other authority. - Synonyms: (ban, forbid, bar)

And in doing so, they actually are somehow prohibiting themselves from moving forward.

4. stakeholders [ˈsteɪkˌhoʊldərz] - (noun) - People or groups with an interest or concern in a business or project. - Synonyms: (interested parties, participants, contributors)

My question was is, do these disclosure regulations actually help? What we find in this study is that four companies that are large and very visible and covered by analysts and covered by the media, those firms are already well on their way to moving towards greater representation of women on boards because they have so many different pressures from so many different stakeholders

5. transparency [trænsˈpɛrənsi] - (noun) - The condition of being transparent, openness and accountability in business or governance. - Synonyms: (clarity, openness, lucidity)

So it didn't really create the transparency it could have created.

6. trade-offs ['treɪd ɒfs] - (noun) - A balance achieved between two desirable but incompatible features; a compromise. - Synonyms: (compromise, exchange, concession)

And thinking about what those trade offs are is always the first step before you can get to innovation.

7. inclusive [ɪnˈkluːsɪv] - (adjective) - Including or covering all the services, facilities, or items normally expected or required. - Synonyms: (comprehensive, all-inclusive, encompassing)

That won't be inclusive enough behind the eight ball when it comes to potential investor reactions.

8. regulations [ˌrɛɡjuˈleɪʃənz] - (noun) - Rules or directives made and maintained by an authority to regulate behavior or actions. - Synonyms: (rules, directives, laws)

What are the systems, procedures, policies, regulations and laws that might actually help increase diversity?

9. constraints [kənˈstreɪnts] - (noun) - Limitations or restrictions. - Synonyms: (limitations, restrictions, hindrances)

Research shows that you can get the most innovative ideas often when you have the most constraints.

10. purpose washing [ˈpɜːrpəs ˈwɒʃɪŋ] - (noun) - When organizations superficially claim to have a purpose, generally for public appeal, without implementing it genuinely. - Synonyms: (faking purpose, false front, superficial claim)

I think there's a huge risk if companies do purpose washing or just say that they have corporate purpose without taking it seriously.

Sarah Kaplan - Challenges can be turned into innovation

Any company that is not moving towards better representation on their boards is going to find themselves behind the eight ball. Regulators need to think about not just what they're regulating, but the nitty gritty of how they implement it so that it can be effective in driving change. The soft touch approaches that have worked in the past have not been powerful enough to move the needle.

What I try to advocate around gender diversity specifically, but also other forms of social responsibility and environmental issues is that these are really innovation opportunities. There's plenty that organizations can do and that CEOs can do, but the most important starting point is to really understand the challenge inside and out. These are really challenging problems that are going to, you know, lead to many kinds of trade offs. And thinking about what those trade offs are is always the first step before you can get to innovation.

I have so much to say and so little time. I'm Sarah Kaplan. I am Distinguished professor of Gender in the Economy and a Professor of Strategic Management at the Rotman School of Management at the University of Toronto. And I am founding Director of the Institute for Gender in the Economy. And I have been an academic for over two decades. And before that I was a management consultant for many years. There's been a lot of conversation in the United States, in Canada, and globally around increasing the diversity in organizations and in particular on corporate boards of directors. And so one of the things I've been interested in is understanding, well, how could we help move the needle on that? What are the systems, procedures, policies, regulations and laws that might actually help increase diversity?

And so one study that I'm doing right now is looking at a regulation in Canada that required firms to disclose whether they had women on their board, how many, and what practices they had in place. My question was is, do these disclosure regulations actually help? What we find in this study is that four companies that are large and very visible and covered by analysts and covered by the media, those firms are already well on their way to moving towards greater representation of women on boards because they have so many different pressures from so many different stakeholders.

But slightly smaller firms, firms that are slightly outside of the media spotlight are the ones that are able to kind of use their disclosures to hide their sometimes poor performance. And in doing so, they actually are somehow prohibiting themselves from moving forward because in hiding the information from external stakeholders, they're actually sort of hiding the information from themselves and therefore prohibiting themselves from doing a better job and increasing diversity over time.

Part of my research has been looking not just what companies do, but what regulators and governments do to structure the ways that companies behave. And the conclusion that I draw, for example, looking at regulations in Canada around disclosure for women on boards is not just the idea of the regulation, it has to be how it's implemented that really matters.

And so in the Canadian context, they created a regulation that said the companies have to disclose about women on their boards and their policies and practices. They said, just put it anywhere in your disclosure document that includes all sorts of other things, financial disclosure and other things. So it didn't really create the transparency it could have created.

And so if they had implemented in a different way, it would have created more transparency and potentially created that social pressure on companies to actually make change. So regulators need to think about not just what they're regulating, but the nitty gritty of how they implement it so that it can be effective in driving change.

I think what business leaders need to take away from understanding diversity on boards is that there are so many pressures out there. There are so many stakeholders who are interested in this. There's so much research to suggest that you have better governance, better decision, better ability to represent the communities that you serve if you have diverse boards. And there's a lot of pressure there.

And so any company that is not moving towards better representation on their boards is going to find themselves behind the eight ball, not just in terms of pressure from stakeholders, but also behind the eight ball in terms of the products and services they offer. That won't be inclusive enough behind the eight ball when it comes to potential investor reactions, behind the eight ball when it comes to performance. And so really every firm should be thinking about how they can improve the diversity of the people who are making the critical decisions in a firm.

It's timely now in particular, because there's been a lot of different efforts along the way to try to increase diversity on boards, including just sort of publicly shaming firms and other things like that. And I think people, many stakeholders, whether it's regulators, whether it's consumers, whether it's investors, are becoming frustrated that firms haven't moved faster. So it's really relevant now because I think that firms are gonna really get increased pressure from all of those or social movement activists or their own employees who wanna see better representation.

And so it's very timely now because I think people have realized that the soft touch approaches that have worked in the past have not been powerful enough to move the needle. And so they're going to have to be stronger measures. And so if firms want to avoid being subject to those stronger measures, they better just move forward themselves. One of the reasons we don't make progress on any of these environmental, social kind of issues is that you end up facing trade offs. But people aren't explicit about it, they don't understand it, they don't map that out.

So they might say, oh well, we want more diversity on the team. But actually to do that we're going to have to search harder, we're going to have to look into other communities that we don't normally look into. We're going to have to invest more in recruiting, we're going to have to invest more in team building, we're going to have to invest more in creating organizations that really allow everyone to feel like they belong. So that feels like really expensive to do, therefore I'm not going to do it. That's a trade off.

But no one says that explicitly maps that out and therefore it makes it harder to think about how could we innovate around that? How could we think about something that would be, that would break that trade off in terms of how we organize in a way that would allow people to feel more included or think about environmental things? If you just say, well, I can't put air cleaner on that smokestack because it's too expensive, therefore I'm going to continue to pollute as opposed to thinking about, well, could we actually change our, our manufacturing technology? Could we use different suppliers? There's all kinds of things that you could do, but if you don't actually lay out, here's the trade off and here's the potential nugget that could allow us to innovate.

If we look at that trade off closely, we can actually come up with different ideas. Research shows that you can get the most innovative ideas often when you have the most constraints. And so mapping those constraints out and thinking about what those trade offs are is always the first step before you can get to innovation.

Investors, employees, consumers, the media, social movements, they care about all of the different ways that corporations can affect society, can affect the environment. And we know that firms can have many great positive impacts. Creating new drugs and products that people want to use, but at the same time can create many damages, exacerbating inequality, creating environmental degradation, contributing to climate change and global warming. And so people care more and more about this.

And so organizations are gonna have to find a way to respond. And if they respond by talking a good talk but not walking the walk, they're gonna ultimately be in trouble. And so what I'm trying to do with my work on diversity and also more broadly on corporate purpose, is to get organizations to figure out how to walk the walk, how to really do the work. And it's hard. These are really challenging problems that are going to lead to many kinds of trade offs.

What I try to advocate around gender diversity specifically, but also other forms of social responsibility and environmental issues, is that these are really innovation opportunities. And that if organizations could think about these challenges not as heavy weights on their shoulders of something that they have to do, but instead exciting opportunities to think about how they can innovate. Innovate in how they organize, innovate in their products and services, innovate in how they go to market.

If they thought about it that way, I think they could come up with something really interesting and something that would break some of these trade offs that have been getting in the way of making forward movement. So I think there's a real opportunity there. But I also think that it's easy to get stuck for many organizations. Easy to get stuck saying, oh, it's too hard or we can't break the trade offs. And so what I'm trying to say is, no, you can break them, but you have to do it by being innovative.

One thing I just want to highlight is this idea that a lot of the challenges that organizations face can be turned into innovation challenges. And so one way we're trying to do this at the Institute for Gender in the Economy is introducing training and courses that are around what we call gender analytics, which is about how to think about your products and services using intersectional gender lens, thinking about race, disability, other forms of inequality, and how that could lead you to design better products and services that would serve the communities that you serve better. And that's an example of kind of flipping the script on a challenge.

We always thought of diversity as just, you know, this thing that we have to do. On the talent side, let's flip the script and think about what it means for going to market. But we could do the same thing with environmental issues. We could do the same thing with global warming, with inequality, is to really think about how can we reframe this challenge as one that leads us to think about how we go to market differently. And I think too many companies leave leave all of that to the side.

And I think there's so many exciting opportunities that organizations could have if they just would flip the script more often on that. And rather than treating all of these different pressures as just like one more thing hammering me, think about them as one more opportunity to go to market in a different way. One example that I give is an organization called McCarthy Uniforms, Small Company in Canada that sells uniforms to schools and also for construction and other things like that. And the CEO, new CEO, comes in for a turnaround.

The company's been kind of run into the ground by the prior folks. And she decides that she, to do the turnaround, she's actually going to apply a gender lens to that. And so she analyzed everything about how they went to market and their products, thinking through what does this mean from a gender lens. And she discovered a number of things that are really important. So for school uniforms, they were always sold with the hems undone because they figured the mother somehow at home was going to hem the pants or the skirt for their child, depending upon how tall that child was. Well, one of the things she discovered was no one has time for that anymore. So they innovated by creating a hem tape that would allow families to quickly fix the clothes for the kids. And that led her to win many more contracts with schools because the product was just going to be easier to use for the customer.

Or she looked at some of the uniforms she was selling for bus drivers and discovered that they, that, that they weren't. And none of the competitors were selling uniforms that were sized for women. So women who have like, for example, larger hips were being forced to wear men's pants that were very poor fitting for them because they would then be too big in the waist and everything like that. And so they said, we're going to launch this line of women sized uniforms. And she, you know, she said the first time there was a woman bus driver actually tried on the uniform that fit her, she cried because it was so powerful.

And again leads to winning many more contracts. What does this gender based analysis do? The company is supposed to take four years to do the turnaround. She does it in two years because she has applied this lens in ways that allow her to innovate in the product and service offerings, how she goes to market. So that's one example where you use the challenge and you don't say, diversity is one thing and my product and go to market strategy is another. You bring them together and suddenly you have a more powerful company that does much better financially than could have been anticipated.

Many CEOs, many leaders really do want to take action, but they don't exactly know where to start. And in part that's because these problems are super complex. There's many different trade offs, there's many different demands. These are things making the job of the CEO the job of the whole organization, the job of the board much harder to do. So I think about three things that organizations can do, any CEO or leader who wants to get started.

The first is actually be thoughtful and explicit about what those trade offs are that they're experiencing. Because I think many organizations skip over that. They're just like, let's go do something. The drive to make change is so is compelling that you just try things. But if you haven't actually been thoughtful about why are there trade offs, what are the underlying mechanisms, what's really going on and being very thoughtful about that, including engaging with communities, not just thinking in your own brain or looking at your belly button, but engaging with communities, engaging with critics, engaging with the data.

That's a really important first step and many organizations skip that. The second thing is to think about, well, are there some low hanging fruit, easy things that we can do? We just, instead of using plastic bags, we'll use paper bags in the grocery store. Instead of putting the deodorant in a box, will just put it on the shelf on its own without wasting the extra paper to give some kind of retail grocery type of examples. Those are some low hanging fruit and every organization should just pluck those fruit and do them and that will make a huge difference.

But then there's a situation where there aren't low hanging fruit. It is going to be a little bit harder. So the third thing that organizations can do is really think about, is there a way I can innovate around this? You know, we have all these great product and service innovation teams all over our organizations and then when it comes to environment or diversity, we suddenly don't use all those talents and skills of the people who know how to innovate. I'm like, use the talents and skills of the people who know how to innovate and apply it to these kinds of questions to see if you can come up with innovative insights.

So those are three main things. I actually wrote a book called the 360 Corporation and I have four points. Because the fourth one is when you can't figure out a solution, it's very tempting to say it's too hard, I can't do it. And you lay it to the side. So the fourth thing is not giving up.

Not giving up when it's hard. If you can't do anything, at least marinate in it. At least try some experiments, at least try to do something that could eventually lead you to that innovation or that change. So there's plenty that organizations can do and that CEOs can do. But the most important starting point is to really understand the challenge inside and out.

So we've heard a lot about corporate purpose. Business Roundtable companies are saying they're going to take care of all stakeholders. I think there's a huge risk if companies do purpose washing or just say that they have corporate purpose without taking it seriously. And I think there's a lot of ways to take it seriously.

But to do that, you're going to have to actually change. You're going to have to, you know, really de center the organization in a network of stakeholders and use that as an opportunity to rethink how you do business. And I think that is hard. And so most companies, if they think they can just put purpose on top of what they're doing without really thinking about how they operate, I think they're not going to go far enough and they're going to end up getting called out on it. And so I hope that organizations use purpose as a way to transform as opposed to a way to do window dressing.

When we think about making change in the corporate world, we need to also make change in business schools, for sure. And I think we're at a cusp of a moment where business schools are actually in many ways, quite far behind corporate practice. And we need to catch up. And we're behind the expectations of our students, too. Like, our students come to business school not just wanting to produce total returns to shareholders.

They want to have meaning. They want to use companies to create innovations that are going to change the world. And so we need to catch up in business schools. So, one, we need to get finance and strategy and social responsibility much more aligned.

Because even if we teach courses on social responsibility or integrated into our strategy courses, if the students then go to the finance class and they learn that everything is about the net present value that's created and they have that one financial metric, then we're not really solving the problem. And so we need more integration across the functions around this. And I think, second, we need to really rethink every element of how we teach.

So I teach strategic management and, you know, we often talk about, well, the strategy and how it relates to financial performance. Well, we could have other, what we call in the technical research world, dependent variables, other outcomes that we can measure. How does this strategy lead to less deforestation in the Amazon in Brazil? How does this strategy lead to reduction in carbon emissions? And really use.

Count those as legitimate outcomes that matter. And then people say, well, then you're not really worried about investors, and investors are the ones who own the shares of the companies. But most investors these days don't want to have their, you know, retire on the backs of the destruction of the Amazonian rainforest or retire on the backs of workers who have been very poorly treated. So even if we care about investors, we need to care about these things.

And that mindset needs to be integrated into everything that we teach when we teach in the business school. So I think business schools need to transform, and we have the ideas, but it's so easy to get locked in, like any organization, to the traditional ways of doing things, and we need to unlock ourselves.

The cool thing about Biggs is that it's business in global society. And what's so important about that is you might be tempted to think of it as business and global society over here, and they're somehow separate. But the point is, they have to be seen as integrated. They have to be seen as all part of a whole. And that if we're really going to make progress, if we're going to survive as a planet and as humanity, we are going to need to really see that integration at a very deep level.

And I hope that that's what this initiative can

Diversity, Innovation, Leadership, Business, Education, Social Responsibility, Harvard Business School