Diversifying Boards for the Future

Diversifying Boards for the Future

by Marje Nepomuceno on and last update on December 06, 2019

As Women’s History Month comes to an end, we take a look at how board diversity—specifically gender diversity—has played a role in pushing for progress and innovation in boards.

Gone are the days when board composition relied heavily on how like-minded members were. This strategy was deemed the most logical when it came to building boards since it made pushing forward specific agenda points—which were all easily unanimously agreed or disagreed upon—much quicker. However, many directors, executives, and consultants alike saw flaws in this setup, especially when board insularity got in the way of innovation and responding to an increasingly dynamic and complex environment. Because of this, many called for the movement towards more diverse boards, claiming that a wide range of perspectives leads to a more inclusive corporate culture, better risk management, holistic strategic perspectives, and even better brand value.

Boards with Benefits

It is obvious that diversity of expertise brings about these kinds of benefits. Having authorities from different fields allows boards to make well-informed decisions, serving as valuable resources for industry insight and standards, check and balance, and compliance requirements.

Social diversity—age, gender, race, religion, colour, sexual orientation, and the like—on the other hand isn’t as explicit, and according to Scientific American, can even bring about discomfort among board members and other communication and collaboration problems. However, research has also shown that social diversity enhances creativity, equipping teams with varying perspectives and experiences that allow them to innovate. Diversity provokes thought among executives as it challenges them to defy the norm and search for unique, novel solutions and breakthrough innovations.

Among the different kinds of social diversity, many boards have already been practicing that of gender due to its proven benefits not just in board dynamic but in actual, tangible success of the company. According to a study conducted by consulting firm McKinsey, while greater gender diversity in corporate leadership doesn’t automatically equate to a positive, healthier bottom-line, companies that commit to diverse leadership are generally more successful. McKinsey states that, “More diverse companies, we believe, are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns.” Their research also found that organisations in the top quartile for board diversity are 15% more likely to have higher financial returns than their national industry medians. Conversely, companies in the bottom quartile are statistically less likely to achieve these returns.

Quotas: An Extra Push?

With the success of gender-diverse boards, global leaders like Norway and France have resorted to imposing quotas on corporate boards for female members. This system has proven to be quite successful for the aforementioned countries, especially for Norway—whose quota was introduced as far back as 2003—who now have women on 42% of corporate boards. France has achieved 33% due, in part, to an established quota in early 2017.

Because of the success of these countries with quotas, there was much doubt at the beginning of the Australian Institute of Company Directors (AICD)’s campaign for board diversity. In 2015, AICD set a voluntary, nonbinding target of having women on 30% of the boards of ASX200 companies by the end of 2018. Leading Australian companies proved doubters wrong and achieved a percentage of 29.7%, just 0.3% shy away from their goal, despite not having mandatory guidelines for board diversity. Australia is also not the only country who has had success with achieving gender diversity despite not having legislative requirements. Sweden currently has 32% of board positions filled by women.

Critics have also attacked imposed quota policies, claiming that “the forced inclusion of women on boards will reduce board quality or effectiveness by stuffing boards with inexperienced unqualified or overstretched individuals.” The AICD stands by this belief, saying that for change to truly happen, the board themselves must be proactive in diversifying and shouldn’t take action just for mere compliance. They encouraged boards to boost diversity in their own interests rather than face any sanctions.  “Just imposing a quota doesn’t achieve the type of cultural change you want to achieve,” says Angus Armour, AICD Managing Director. “Australia has heard the message about the value of gender diversity in boardrooms. Diverse boards are an antidote to groupthink and lead to better outcomes for shareholders, consumers and the community.”

Other Australian leaders have backed the AICD and their decision, stating that corporate leaders must first set an example in welcoming a more inclusive and diverse board. This support has reflected not just in the 29.7% result of the ASX200, but even in the ASX100 and ASX50, whose results were even better at 31.5% and 31.1% respectively.

I’m Every Board Woman

While there is significant progress in diversifying boards and normalising women’s role in the board room, there is still much work that needs to be done. To traditional companies, the shift may seem daunting at first, but there are small steps that can be taken to get started.

Lisa Cook of Get on Board Australia—an organisation that caters to the unique development and education needs of new and aspiring company directors—suggests starting from the board recruitment process. “Draw candidates from a wide range of sources and deepen your candidate pool. Use the [organisation’s] skills matrix and diversity goals as a framework to ensure that your board candidate pool is not filled with carbon copies of you or the existing board members.” She also recommends shifting director recruitment from the traditional “who do I know” methodology to the more progressive “how do I know” process of hiring based on credentials and track record instead of network.

Working Towards a Fool-proof Future

Despite the varying perspectives with regard to achieving board diversity, may it be social diversity or expertise diversity, there is no denying that the end goal is very clear—to provide refreshing, holistic leadership for organisations to address the ever-evolving needs of their operations and their stakeholders. Whether or not leaders believe in enforcing quotas, they must keep in mind that board diversity is all about improving businesses by bringing together diverse perspectives and experiences that enable organisations to not just navigate, but triumph over ever-changing business environments.

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