The importance of diversity in the boardroom

ConnectThe need for greater board diversity has never been stronger than right now.

The wide acceptance of this need in the world of corporate governance is highlighted, not by the fact that it is a hot topic, but by the interrelationship between positive business performance and workforce diversity. Divisions between parties within an organisation have also incited this need.

Boardroom diversity is the result of an exceptional search and recruitment process and well-managed organisation. Although it is slow for many organisations to grasp, it has been shown to be one of the ways in which to enhance corporate governance.

Broadly speaking, boardroom diversity covers age, background, gender and ethnicity as well as skills and experience. However, having traditionally acknowledged the diversity of skills, in recent years above attributes.

Decision-making by the board impacts the business and beyond. Hence, membership on boards should be representative of the business and, ultimately, the world - in other words, normalisation rather than diversity.

Being able to listen to and acknowledge different opinions from individuals with different backgrounds, experiences and perspectives make good corporate decision-making. Corporate boards which include women as directors demonstrate that they value diversity of both thought and experience.

Recent studies have revealed that diversity adds value to an organisation, with a Forbes report identifying diversity and inclusion as the key drivers of internal innovation and business growth. Management consulting firm, McKinsey & Company recognised that companies with diverse executive boards generated higher earnings and returns and were better able to understand their customers and the business environment in which they operate. Consequently, boards are better able to identify and seize opportunities for innovation.

Why does it really matter and what are the benefits of diversity for your organisation?

Diversity of thought / perspective

Boards are not supposed to be in full agreement all the time, whether it is with the business or with each other. Each board member has their own personal background and experience and offers their individual opinions, ideas and solutions. Board composition that is diverse in perspective as well as in appearance signifies a quality board. But a diverse board should not be there just for the sake of it.

Diversity and breadth of perspective create productive board discussions. Members should be listened to and encouraged to voice their opinions and make contributions. Productive discussion and debate can only develop where directors are able to challenge one another, highlighting issues and solutions that have not been considered. A diverse board composed of different backgrounds, skills and experiences and a much broader perspective will lead to a more critical analysis, considering risks and implications of various actions. Thus, adding value to your organisation.

The opportunity to tackle problems from all angles, and the multiple viewpoints on possible results will drive a more effective decision-making process.

By constantly challenging itself, the board is able to keep up with the company’s changing dynamics.

With reference to board selection, board directors should be chosen because they create a positive impact on the board’s chemistry and dynamics - thinking and communicating diverse thoughts and perspectives to board discussions, resulting in a more agile board, improved business performance and better compliance and corporate governance.

Shareholder/stakeholder representation and enhanced reputation

The purpose of boards is to serve their shareholders’ best interests. The composition of boards of directors should be representative of the companies and communities they govern, (i.e. shareholders, employees and customers) so that they are able to engage with these groups effectively. Stakeholders are more comfortable with decisions when boards represent the diversity prevalent within their workplaces and beyond, in the communities. Boardroom diversity clearly demonstrates to shareholders, stakeholders, customers and the wider public, the organisation’s knowledge and understanding of clients and employees and how attuned it is to their needs. Boards genuinely reflecting staff, customers and communities in which they operate and effectively engage with, thereby improve the corporate brand and reputation.

Access to a broader pool of talent

A situation of director shortage, where companies are specifically looking for individuals who not only have the industry knowledge and expertise but time and effort to devote to the role, will be alleviated by considering diversified attributes, e.g. women and ethnic minorities. By showing commitment to identifying, attracting and retaining individuals regardless of gender, ethnic background, religion or any other defining characteristic, boards can tackle issues from a multitude of angles. From a better utilised pool of talent, corporations become increasingly adaptable and focused on the company’s long-term strategy.

Competitive advantage

Diversity of perspective and experience in anticipating challenges and assessing risk lead to better risk management. The board can take advantage of its diverse set of skills, knowledge and expertise, which will help it deal with complex issues including driving forward the use of technology and the rise of artificial intelligence.

A diverse and inclusive board boosts effectiveness. With a competitive edge in today’s rapidly changing global economy, a diverse board is better able to thrive and create value. An adept, strategically-focused and knowledgeable board can meet its own challenges and keep up with the changing dynamics an organisation faces.

 

Greater board diversity and inclusion as a priority enhances corporate reputation, helps improve company performance, thereby positively impacting board performance and creating stronger relationships with investors, customers, business partners and clients/customers.

Board diversity is not about meeting quotas; it is about accelerating business growth with the collective knowledge, skills and experience required to guide a corporation in a constantly changing marketplace.

However, the board will face internal and external challenges and so members will need to be open and welcoming towards a more diversified and heterogeneous board. As a key constituent of good corporate governance, board diversity must ensure boards attract the most qualified and passionate leaders.

When considering the diversity of candidates, boards need to think about the diversity of perspectives. Such candidates will possess a good combination of demographic, personal and experiential attributes.

Firms that are slow in the uptake of diversity are inclined to face increasing pressure from regulatory bodies which may inevitably issue quotas requesting compliance.

 

Read a case study of a successful board

Scottish Building Society – a business with three women on its board – have worked to make their own board meetings more efficient, as well as making the information they provide to directors more professional and effective. You can read a case study of how they did this here.

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