Boardroom Diversity, are Companies Walking the Talk?

Effective boardroom diversity is more than simply having board members with mixed races and balanced gender representatives. It is about putting the interest of the organisation first, based on the stakeholder inclusivity and the spirit of corporate citizenship.

The notion that being different is good is true when there is room for differentiation. Otherwise, it stands as nothing more than a rhetoric. The same can be said about diversification in the boardroom. In as much as it is touted as the next essential step to take, it is only putting action to words that guarantees a favourable outcome. As such, diversity, equity, and inclusion require organizations’ deliberate action (towards implementation) to keep boards highly effective.

What is Board Diversity?

Diversification in the boardroom is achieved when we bring people on the table based on heterogenous factors. Such factors include gender, the skills to understand and work around threats, opportunities, and understanding risk. Other demographic factors to consider are age, race, location, and ethnicity.

The best performing corporate boards have people with wide varieties of skills and experience levels, from all levels of society.

Therefore, we achieve diversity by balancing the following factors.

1. Age (Including Generational Mix)
2. Race
3. Gender
4. Culture, locality
5. Field of knowledge
6. Skills, Functional
7. Experience
8. Thoughts
9. Disability
10. Special interest groups

Implementation, including what percentage of each of the above varies across organizations. Nevertheless, boards must generally follow Principle 7 of the King IV Report on Corporate Governance focus on composition of the governing body.

King IV Principle 7 state that, The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity, and independence for it to discharge its governance role and responsibilities objectively and effectively.

The above means changing from what we used to see in the past, where companies would ‘pride’ themselves about recruiting like-minded people and have the board aiming for the sole purpose of supporting the CEO.

Recruiting board members based on the following can be a recipe for disaster;

• Like mindedness – Like-minded teams are less objective and performs less than a diverse team.
• Loyalty – In as much as loyalty is good, it must not be the leading quality sought in a board member. Instead, people who ask tough questions are great thinkers with high cognitive skills. Therefore, a board must recruit members who see things with a distinct perspective. These are highly creative, are innovative, and present more options. They also pay attention to the company’s needs.

Some Benefits of having a Diverse Board

When you build a diverse board, you bring in new ways of thinking, insights, and different perspectives on stakeholder wants and needs.

For example, diversified boards;

• Have high cognitive diversity and improved board independence.
• Are more adaptable to the company’s changing environment.
• Can challenge conventional wisdom and innovate.
• Have multiple views on the outcome of any action (hence the board is more likely to consider a variety of risks).
• Can easily keep up with market trends and internal problems.
• Can improve their reputation and brand.
• Keep expanding the knowledge base of a board.
• Enjoy improved decision-making. Divergent backgrounds mean tackling the same idea in differing ways.
• Are a catalyst for change. Great ideas come from disruption of the status quo.
• Help keep the company knowledgeable and sensitive to a wider variety of groups.
• Setting an example at the top will hopefully have a trickle-down effect within the organization.

Organisations that fail to move with current trends (worldwide) find themselves lagging those who are always ahead of the times. How much a company commands the reputation of being a ‘visionary’ deeply relies on how diverse, and hands-on its board is.

Therefore, a good board is, of course, composed of members from a variety of backgrounds, with high adaptive skills. These can make the company more adaptable to its ever-changing environment, effectively protecting it from the competition.

Conclusion

Internationally, several large corporations are still lagging when it comes to diversity on their boards, especially regarding gender and ethnicity. However, some governing bodies and financial regulators are now playing a huge role in ensuring diversity. A good example is that of the UAE where all companies listed on the stock market now require at least one female director. The number does not suffice, but is a step in the right direction. There are, however, still questions about unlisted entities without heavy regulatory scrutiny.

Bringing diversity to the boardroom should not be an act of charity, nor must it be because of a regulatory requirement. It must go beyond empowerment and affirmative action to become an issue of business sustainability through enhancing board performance. If it is holistically implemented, it rightly serves its purposes than when the company has been strongarmed into compliance by a certain regulatory rule.

What are your thoughts on boardroom diversity? Please add your comments below.