Much has been said in recent years on the topic of board diversity. In particular, the number of women on the boards of listed companies has come under scrutiny. The European Commission proposed legislation in 2011 with the aim of attaining a level of 40% of non-executive board-member positions in publicly listed companies being women. However, there was no broad consensus in the Council and it seems unlikely that this will be adopted any time soon. For me, the issue of boardroom diversity goes much further than just gender.
What is meant by diversity?
Traditional approaches to diversity tend to focus only on variables such as race or gender. In my experience a wider multi dimensional assessment of potential board member attributes compared with the needs of the organisation is a more valuable exercise. The perspective of the executive is a combination of experiential, demographic and personal attributes. Therefore, while gender, race religion and age are clearly strong influences; mindset, experience, personality, interests and values are also important.
It is also useful to have a mix of executive and non-executive directors. Unpaid directors can offer an independent, unbiased view which can be an invaluable balancing force in boardroom discussions. Their objectivity can allow them to safeguard the interests of minority shareholders and manage conflicts of interests.
Why is diversity valuable?
Ex US President Woodrow Wilson said: “I not only use all the brains that I have but all that I can borrow”. The implication for the boardroom is that having multiple views benefits the decision-making process as participants are more likely to have considered the various risks and consequences. The issues faced by boardrooms are simply too complicated for any one person or homogeneous group to evaluate. Having a broad range of experiences and attributes rather than overlapping ones helps the board to provide effective corporate governance and strategic oversight.
Companies are increasingly realising that their clients and customers are diverse and therefore their boards should be too. If companies set an example at the top by having a board which reflects the real world it is likely that they will become more adaptable to the ever changing environment. Particularly for public companies, where there is increasing scrutiny, it is likely that a diverse board will result in an improved reputation and brand.
How best to create a diverse board?
Diversity is best approached in a structured way. Otherwise it runs the risk of being perceived as an exercise in “box ticking”. Companies should determine what expertise and competencies are of value to them and in particular what they are currently lacking. Casting a wider net to find talent and ensuring that the director evaluation process in recruitment is meaningful will lead to a more effective board. It is also beneficial to refresh the membership of the board at appropriate intervals. This counteracts the fact that homogeneity in thinking can develop over time as board members become too familiar with each other.
Sarah Burrows is an associate solicitor with Belfast law firm Cleaver Fulton Rankin. She argues diversity on company boards is essential.
