A diverse corporate board can bring a multitude of benefits to an organisation, and that is reflected in the increased pressure on boards to become more inclusive. Indeed, some countries have diversity quotas, with France requiring at least 40% of directors to be female, for example.
And whilst this is both welcome and long overdue, the definition of diversity relating to boards is much broader than this. This article will explain more and tell you how to increase board diversity and embrace the positive outcomes of social, professional and cognitive differences.
What is board diversity and why is it important?
Board diversity relates to the range of backgrounds, demographics, skills, competencies and experiences that your board directors possess as a collective. Although the word “diversity” is used most often to indicate demographics, especially in the wake of Me Too and Black Lives Matter, the actual definition in terms of how boards function should also include other diverse attributes.
Writing in the Harvard Business Review, Stephanie J. Creary, Mary-Hunter ("Mae") McDonnell, Sakshi Ghai and Jared Scruggs state that:
“Social diversity (e.g., gender, race/ethnicity, and age diversity) and professional diversity are both important for increasing the diversity of perspectives represented on the board.”
This means that you can and should seek diversity in terms of:
- experience across industries
- experience from different boards of directors
- personality traits
Diverse boards are more likely to make better and more informed decisions because they are more representative of society at large. They should feature a balance of personality types and provide the right mix of innovation and experience to understand how things should work, but also how to disrupt their industry in a positive manner.
The benefits of board diversity
Here are some of the main benefits of diversity on boards:
|Diversity of thought and innovation||Boards that are composed of people of the same gender and race, around the same age and with the same kinds of experiences and backgrounds might find that they tend to make the same decisions that have served them in the past. Whilst this might work out fine for some organisations, there are often better and more effective ways forward. A more diverse board is better placed to find new solutions to challenges by thinking about them from a different angle. By breaking free of “safe” thinking, it is easier to innovate and thrive.|
|Adaptability||The world is changing at a prolific pace, and it can be difficult for companies without diversity on their boards to keep up. Activist investors want to see that boards can respond to social change and are able to tackle huge cultural shifts, such as the increased interest in environment, social and governance (ESG) topics. With a range of experience and attitudes, diverse boards are better placed to drive change and embed these new principles into strategy.|
|Improved reputation and company culture||The murder of George Floyd shone a spotlight on race inequality in the US and, eventually, around the world. This led to people scrutinising all areas of life for injustice like never before. This scrutiny is not unique to race, and now it is more important than ever to be seen to promote equality. Those boards that are truly diverse show that the organisation is progressive, and that is beneficial to brand reputation. This is important externally, in the eyes of customers and investors, but also internally for company culture. A corporate board of directors that embraces diversity leads the way for an organisation that is welcoming, open and equal.|
|Higher profit||The UK’s Financial Reporting Council found that “higher levels of gender diversity of FTSE 350 boards positively correlate with better future financial performance (as measured by EBITDA margin)”.McKinsey also found that more diverse boards performed consistently better than their peers.|
How to increase board diversity
1. Run a diversity audit
Commissioning an audit of the composition of your organisation is a good way to begin increasing your diversity. If there is a disparity between the make-up of your business and board, then you can take steps to make your directors more representative of the company as a whole.
For the board specifically, running an audit or a board evaluation would help you identify gaps. This doesn’t just mean in terms of social factors, but also highlighting key competencies that you should seek to add to the collective through recruitment.
The diversity audit will also tell you in which areas you are over-represented — the ones which you should take into consideration. Think about how these over- and under-representations affect the board’s ability to govern effectively.
2. Secure a commitment to diversity
By stating in public that you are officially committed to diversity, it becomes essential to fulfil your promise. This holds the board and senior management to account and means that it is not something that can be deprioritised or forgotten about.
With diversity an official aim, you can dedicate resources to your efforts and create a board diversity policy in which you should set out how you will increase diversity and what you intend to achieve in terms of director recruitment.
This provides transparency in your campaign to diversify the board for the good of the company.
3. Concentrate on competencies
Of course, you do not want diversity for diversity’s sake. It is no good onboarding a board member who cannot do the job just because they fit a diversity gap.
This means that your approach should be to identify what your board needs in terms of skills, personality or knowledge and then cast the net wide enough to find a range of different candidates who add the diversity you require as well as the abilities that will help them thrive within the board environment.
There is more to diversity than simply increasing the number of representatives of a certain demographic. This could be seen as tokenism by investors and customers. Every board member should be employed on merit, with people from all walks of life who hold those skills being considered.
4. Expand recruitment efforts
Just as having a diverse corporate board helps organisations to think differently when it comes to the stewardship of the organisation, your recruitment efforts in order to find the right candidates, who might not traditionally have been associated with working in the board, should be just as innovative.
Create a task force to go and find qualified candidates in places you might not always target. Look at universities and colleges for potential board members, as well as people on business programmes and courses.
The right person for the job might not be in senior management already but somewhere else that your rivals haven’t discovered yet.
5. Be intentional and explicit
In order to ensure everyone is on the same page, you should be explicit about the importance of diversity in your efforts to find new directors. Not only should your board and other stakeholders know that this is the aim, but you should also make certain that everyone is aligned on what the organisation believes diversity to be.
As mentioned above, there is a range of different definitions for what diversity actually means, so be clear about what it entails in your company.
Some organisations even make diversity part of their core values. If diversity is a key driving force within your organisation, you can turn this into a powerful recruitment tool for talent. The opportunity to work in an environment that truly values diversity gives you the edge over your peers who do not share this public commitment.
6. Track and measure progress
Regular board evaluations should take into account the make-up of the board. This will include the diversity gaps that exist. You can track your progress from one evaluation to the next to ensure that your efforts are effective or otherwise.
How to reap the benefits of a diverse board
Once you have assembled the diverse board, that is not the end of the story. You need a strong chair in order to bring together your diverse board and to encourage teamwork between people with differing attitudes and experiences. This enables you to use these differences to produce discussions that stress-test each other’s arguments and pave the way to a consensus after considering all angles.
How does diversity improve board performance?
Diversity stimulates alternative ways of thinking and problem solving that allow boards to find new ways to tackle existing challenges and to face new challenges head-on. Bringing together a range of different perspectives means that there will be innovative ideas on the table at all times. This creates diversity in governance and improves company performance.
How do you measure board diversity?
You can measure diversity in terms of representation on the board when it comes to demographics. It is easy to monitor trends relating to how many women or how many people from ethnic minorities hold positions. In terms of skills and competencies, your annual board evaluation should look into which competencies you possess and which require adding new members to your current board. By the time the next evaluation comes, you will be able to see whether you have added the required skills.
Board diversity is something that all organisations should seek to achieve. But there should be awareness of the difference between diversity and tokenism. Boards should understand that the latter is unhelpful and can actually be damaging.
In addition, diversity does not just relate to demographics. A diverse corporate board should look to involve different personality types and levels of experience, too. We hope this article has shown you how to increase board diversity, as well as how to help the board chair encourage diverse board members to work together productively.
If you want to improve collaboration between board members, try employing a board portal to run your meeting processes. From the board papers being distributed to the meeting itself and the follow-up actions, iBabs is a secure cloud-based board management solution that saves time and streamlines your board meetings. Request a free demo today.