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It’s not just about money, well, at least not in a direct way. Diversity is key in the war for talent. A diverse and inclusive boardroom speaks volumes when it comes to the ability to attract, develop and retain talent. Every organisation around the world is having to compete in the face of a range of new challenges. We operate in a highly digital environment, on a global scale, in the face of ever-tighter budgets. This is before we contemplate the challenge of rebuilding our businesses and communities, following the coronavirus crisis.
Every organisation, large and small, needs access to the biggest pool of talent possible if they are to compete effectively in this changing world. Potential recruits will look at institutions to see if there are other people like them there. Will they be welcome? Will they fit in? If the make-up of the board signals a firm ‘no’, they’ll look to take their services elsewhere. It stands to reason that any organisation will be at a competitive disadvantage if they cannot attract the best possible talent. There is also clear evidence that a diverse board improves the quality of decision making by introducing a new perspective which can lead to improved, more accurate group thinking. There was an interesting study by the Journal of Personality and Social Psychology where scientists assigned people to six-person mock jury panels. The panels were made up of a range of different backgrounds, with some being all white, others with four white and two black volunteers and so on. The juries were then all shown a video of a trial concerning a black defendant and white victims. The subsequent deliberations were very revealing. The more diverse panels were more focused on the facts when discussing vital evidence and made fewer factual errors than the homogenous panels. If any errors did occur, they were more likely to be corrected in the discussion. To correlate how this might work in a board setting, there is another useful study highlighted by Forbes, that analysed approximately 600 corporate decisions made by 200 different business teams, over a range of companies in the space of two years. The research found that inclusive teams made better decisions 87 percent of the time. These teams also made their decisions twice as quickly and with half the number of meetings required and the decisions made delivered 60 percent better results.
Better, more considered, decision[1]making means less reckless risk-taking. A diverse team at the top ensures multiple views are taken on the outcome of any proposed action, which naturally leads everyone involved to examine and discuss the potential risks. Firms with more diverse boards are more likely to be able to properly evaluate risks. In the case of a publicly quoted company, this in turn translates into a greater likelihood of dividends for stockholders and higher dividends per share at that. It’s not always easy for an organisation to change entrenched habits and hire individuals who don’t look, talk or think like everyone else on the board. This is particularly so if things have been the same as far back as anyone can recall. Remember though, the cost of conformity is that it discourages innovative thinking. It’s too easy to fall back into the position of, why change, when no one can think of anything different to do? Enriching a board with a mix of different genders, races, ages, skills and experience and nationalities will boost its creative potential to develop new ideas. Each member will bring new perspectives and approaches when it comes to solving complex, or unexpected, non-routine problems.
Despite the clear signposts pointing to the benefits of diversity on boards, there is a long way to go. Let’s take the gender divide as a starting point. In recent years, there have been greater moves to increase women’s representation on FTSE 100 and FTSE 250 boards. According to the latest figures available, progress is being made, but far, far too slowly. Since October 2017 reports Exeter Business School, the percentage of women on FTSE boards is up from 27.7 percent to 29 percent. Progress on FTSE 250 boards is marginal though – 23.7 percent, up from 22.8 percent. We were expected to meet a target of 33 percent by 2020. The figures here do contain good news for female independent director positions, which are at an all[1]time high of 35.4 percent in FTSE 100 businesses. Unfortunately, executive positions appear to have flatlined at 9.7 percent, so there is still a way to go there. Those hoping for more diverse boards can also be encouraged by the number of female independent directors now chairing committees. Eighty-five women chair 95 committees, with the majority (42) chairing remuneration and a further 23 chairing audit/risk committees. However, before breaking out the bunting to celebrate, I should add that 253 male independent directors chair 293 committees.
Disability is another area of diversity that can’t be ignored. There are more than 12 million people in the UK with a disability. According to the ONS, around eight percent of the population consider themselves to be ‘limited a lot’ by disability, while a further nine percent say they are ‘limited a little’. Figures on the representation of disabled people on corporate boards are hard to come by, which in itself speaks volumes. We mostly need to rely on anecdotal evidence, so can you name a disabled CEO? In sport, it has been reported that the percentage of disabled people on National Governing Body boards is three percent, while the percentage of people who identify as disabled on NHS boards is 5.3 percent, although there is a split which is slightly higher in non-executive roles. The charity sector appears to be doing a little better, with disabled board-level representation at ten percent, according to Henley Research. As for ethnicity, the figure to bear in mind here is the percentage of people from Black, Asian and Minority Ethnic (BAME) backgrounds in the UK, at 14 percent. Just 84 of the 1,048 director positions in the UK’s largest companies, are held by a business leader from an ethnic minority and this figure is down one point from the previous year. There are just five ethnic minority CEOs and the majority (54 percent) of FTSE 100 boardrooms still show no evidence of any ethnic diversity at all. Last and by no means least, one further crucial area to consider in the context of diversity is age. For some reason, while it is fairly well known that the vast majority of board members are of a certain age, age diversity does not seem to attract the same attention as other forms of diversity. Again, data is scarce, but it is believed that the percentage number of non[1]executive directors under 50 is in single figures. PwC’s research into the US market shows that just six percent of directors are in this age bracket in the S&P500. This seems a ludicrous dichotomy, since we know Generation Z, though not a homogenous group, is a cohort that can bring fresh skills and perspectives, take technology skills as a case in point.
Whenever a new scandal occurs at any organisation, whether in the corporate world or not-for-profit sector, I find myself looking up the annual report of the organisation involved, or turning to the online ‘about us’ section. When I find the pictures of the boardroom line up, I invariably find myself utterly unsurprised when I see the usual row upon row of middle-aged or older, white male faces staring out at me from the photos. I know I am not alone in my cynicism about this issue. Any organisation that wants to improve its standing among all of its stakeholders, whether it is customers, employees, communities or society as a whole, needs to address this issue.
