Why Board diversity is far more than a political correctness
10 Aug, 2016
A recent report in the Washington Post about why more diverse Boards make better M & A decision prompted me to put (virtual) pen to paper about the true nature of diversity, why it matters to companies, why we at Finance For Guernsey put a great deal of weight on the benefits of diversity and why it is a tough thing to achieve.
Before heading into the complexities of diversity itself, why does the concept itself matter to a business? The conclusion of countless studies in the area is that a group composed of people who are fundamentally different will between them make better decisions in the longer term than one heterogeneous group.
To give an extreme example of the risks of heterogeneous decision making, consider this example from a good few years ago: you, together with a bunch of people of very similar backgrounds, are responsible for the largest enterprise on earth. It has been built up over decades to be the largest global organisation ever seen. You believe that, in exchange for what you are certain are your superior technology, organisational skills, elite management and innovation that your subsidiaries elsewhere in the world should take the word of Head Office without question. When one subsidiary suggests that they believe a little more autonomy in decision making would bring benefits to all, you and your pals reject the notion out of hand. You believe what is needed is to remain resolute in the face of insubordination from those further down in the organisation. No one in a position to influence decision making questions the logic of this approach, because everyone in the group thinks and acts the same. This is not taken well in the subsidiary, someone spills some tea and Britain’s position as the preeminent global superpower begins its slow decline.
The same is true (to perhaps less dramatic results) in many, or even most, organisations globally. A natural tendency to work with people of similar backgrounds will create a decision making process that is skewed by the in-built bias within the group. In companies the culture of a male, pale and stale Board may quite often resemble that of the British Parliament of the 1770s, with equally devastating effects on businesses and their subsidiaries. Perhaps equally dangerous in an atmosphere that sometimes resembles a gentleman’s club is the lack of challenge to an executive team by the independent Directors.
So having some alternative opinions around the Board table wouldn’t be a bad thing, but how do we achieve true diversity and is there a role for regulators and legislators in shaping Board diversity?
The first thing to kick out is the idea that this is a debate simply about gender. As someone who has worked with and for a great many inspiring women I find it depressing that so few are seen around Boardroom tables, but diversity should not be merely seen in gender terms, it needs to be multi-dimensional. Board diversity is about everything that each individual quite literally brings to the table, regardless of gender, religion, ethnicity, sexual orientation, nationality, wealth, upbringing, sports team each support or what side of the bed they prefer sleeping on.
True diversity is not something that is easily dealt with by quotas or measured by statistics, because it is so multi-dimensional. The specific issue of gender inequality is to a certain degree being eased by mandated targets for female representation on Boards, but other issues of diversity can only be dealt with within a Board and cannot be reported upon. Someone’s sexual orientation or religion should never act as a basis for inclusion on a Board nor should it be something that is required to be reported to shareholders, but the different perspective that such a background might bring may be a useful addition to a Board.
The primary responsibility for diversity should lay with the Board itself and particularly the Chair of the Board. Commitment to diversity should be made clear by organisations and should be demanded by all stakeholders. It will make for better organisations and a better world.Return to Blog Posts »