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. Given the place of innovation and disruption in business growth, a Board that will add value to the organisation cannot afford not to have the younger generation represented in its composition as this allows for adaptability and faster reaction to changes in the environment.
Geography: In an increasingly global world, 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. Similarly, any business that seeks to do business nation-wide should give careful consideration to achieving a good balance in the composition of its Board such that it is perceived as truly “national”.
Gender: Historically corporate boardrooms have been largely male dominated. The benefits of gender balanced Board are now being recognised with 80 percent 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. Women typically tend to bring new perspectives to issues, ask more questions and pay significantly more attention to detail.
Many Boards have started to recognise the tremendous value women bring unto corporate Boards and are consciously giving priority to women when appointing new Directors. To ensure that this does not end up as mere tokenism, women need to properly equip themselves with the appropriate skillset that will enable them make valuable contributions to Board effectiveness. They also need to strengthen and deepen their networks to enable them take advantage of opportunities in this regard.
Independence: Independent directors bring a balanced perspective to the boardroom as they assess matters more objectively. They are also able to help the Board find a middle path when seeking to balance conflicting stakeholder interests.
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. The diversity of its composition will ensure that diverse perspectives are considered in decision making.
Better utilisation 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 heterogenous Board signals positively to internal and external stakeholders that the organisation emphasises diverse constituencies and does not discriminate against minorities. Increasingly, “social stakeholders” are paying closer attention to Board composition and calling out those organisations whose Boards and senior management do not reflect the diversity of their constituencies. Companies like Apple have been called out by shareholders on account of male dominated Boards.
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. However, the benefits of having a diverse Board far outweigh the challenges of putting one together.
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 up 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. Whilst paying attention to diversity, it is unassailable that Board appointments must always be made on merit, with the best qualified person getting the job.
ADEYEMI ADEBISI
