Board diversity: A key imperative

Diversity is the variation of social and cultural identities among people existing together in a defined employment or other setting. Discussions around diversity typically revolve around gender. Board diversity however entails cultivating a broad spectrum of demographic attributes and characteristics in the Boardroom with the intention of making the Board less homogenous. These include the following:

Skills, Expertise and Experience: Having the optimal mix of skills, experience and expertise is important in ensuring that the Board of Directors is collectively equipped to guide the business and strategy of the company effectively.
Ethnicity: Ethnic diversity connotes a mix of individuals from various racial, cultural and religious backgrounds. The ethnic mix of a Board should ideally represent the area in which the company operates.
Age: Age diversity is often overlooked in the Boardroom. Board members tend to be older as many Directors equate age with experience. While older Directors provide a wealth of knowledge, younger Directors introduce fresh perspective into the Boardroom.
Geography: In an increasingly global workplace, neglecting this element of diversity would be particularly imprudent for a multi-national company as it may result in Boardroom perspectives lacking a robust understanding of the company’s operating environment.
Gender: Historically corporate boardrooms have been largely male dominated. The benefits of gender balanced Board are now being recognized with 80% of buying decisions globally made by women. “It is clear that boards make better decisions where a range of voices, drawing on different life experiences, can be heard. That mix of voices must include women” Lord Davies of Abersoch, CBE.
Independence: Independent directors bring a balanced perspective to the boardroom as they assess matters more objectively.

The benefits of having a diverse Board cannot be over- emphasized. These include;

More Effective Decision Making –  A diverse Board will take decisions more effectively by paying more attention to managing and controlling risk as well as having a better understanding of the company’s customers/clients.
Better Utilization of Talent Pool –  A diverse Board is likely to possess different personal characteristics which lead to dissimilar leadership, thinking, emotional styles, risk preferences and behaviours. It also opens up wider networks and business connections to the Board.
Enhancement of Corporate Reputation and Investor Relations – Attention to diversity in the composition of the Board of Directors establishes the company as a responsible corporate citizen. Having a heterogeneous board signals positively to internal and external stakeholders that the organization emphasizes diverse constituencies and does not discriminate against minorities.
Wider Range of Perspectives: Diversity generates effective challenge of status quo (group-think).
As there are benefits to board diversity, there are also challenges. The search for suitable candidates could be time consuming and expensive as a result of which the Board often settles for Directors with little experience and inadequate qualifications. Secondly, the more diverse a Board becomes the more difficult Board communications become. Diversity leads to changes in Boardroom dynamics which could challenge the involvement, engagement and individual contributions of Directors. There is also the fear of outsiders or relinquishing control, leading to the appointment of “puppet directors” who will not upset the apple cart.

Having established diversity in its composition, it is inevitable that at some point, group think will ultimately set in, as the more Directors interact, the more similarly they think. Therefore, regular Board replenishment is imperative in achieving effectiveness.

The boardroom is where strategic decisions are made and it is imperative that Boards are made of competent high calibre individuals who offer a mix of skills, experience and background. To derive the benefit of diversity, it is important that the Board does not approach this from a compliance or “box – ticking” perspective, rather it should be incorporated in a way that effectively improves the performance of the Board. “Companies that fail to dip into the talent pool of diverse, well-educated and ambitious individuals run the risk of limiting value creation, compromising sustainability and undermining long term competitiveness”. (Deloitte Centre for Corporate Governance).

 

Bisi Adeyemi