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COMMUNITY UPDATE

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Welcome to Week Two of our High Performing Boards Series where we will be exploring board diversity. There is no doubt that the right mix of skills, ideas and personalities on the board can help the performance of a company. Yet, diversity on boards is still a target that many are striving to reach. At last week's Criticaleye Inspiring Non-executive Directors Drinks Party, Helen Alexander CBE, President, CBI, treated Members and guests to a rousing debate on boardroom diversity and the benefits a diverse board can bring.  

As one may think, there is a danger to having a boardroom full of carbon copies of the chairman. Helen says: “One of the big responsibilities on leaders is to be aware of the dangers of homogeneity at the top of an organisation and the ‘groupthink’ this encourages. If there is groupthink, there may be a lack of effective challenge to determined bosses.”

She believes that many of the failings of business that the world has seen throughout the recession were due to CEOs not being challenged. To combat this, diversity is needed. “A key way to help create a climate of challenge is through having more diversity at the top, with talent drawn from as wide a pool as possible. If we want differing views, we must have different types of people, happy to challenge and speak up.”

Diversity does not only refer to gender or ethnicity - although that is what steals the headlines - it also refers to the professional background and skills of appointed NEDs.  "True diversity goes much further than gender and race; it involves expertise, culture and life experience, perspective and even sense of humour.  Certainly, boards are a bit more gender diverse than 20 years ago, but do they truly represent the broad diversity of stakeholders, especially consumers?  That kind of diversity at the very top level of decision-making enables the organisation to be more responsive to those who do business with it, helping to anticipate needs and wants and satisfy them, helping to react more effectively to challenges and crises and avoid them.  Board diversity helps companies live by the old dictum, ‘Know thy customer’ because the customer is understood clearly at the very top, not just by the marketing and reputation departments," says Mary Jo Jacobi, Associate, Criticaleye.

However, the right skill mix needs to be continually reviewed to make sure it matches the strategic objectives of the organisation. “It's important to continually review that the talent mix of the board matches the strategic objectives, ie, can and will they deliver the agenda and moreover can they operate effectively in today's volatile market. Does the chemistry work - no place for emotional and territorial positions? Are they able to operate and add value to the total business agenda as well as their functional responsibilities? Non-executives must be value adding either by challenging the board and encouraging innovative thinking - sizing and articulating the risks/governance issues,” says Mark Riches, CEO, World Duty Free.

There is no doubt that a diverse boardroom increases productivity. According to the University of Queensland and the LSE, gender diversity pays for boards in terms of board and corporate performance, and also shows that women on boards makes for better attendance by men. “The University of Michigan demonstrates that mixed teams consistently out-perform homogenous teams on a variety of tasks. Its idea is that people from different backgrounds look at problems in different ways. Whereas those educated and trained in the same way will bring the same tools to the job, different people have diverse tools,” asserts Helen.

The continuing issue of homogenous boardrooms has forced some countries, such as Norway, France and Australia, to impose quotas on the number of women on boards. But Hazel Cameron, LDC Chairmen's Network Director, doesn’t think this is a step in the right direction. “No one can seriously disagree with the statement that boardroom discussions and decisions would benefit from greater diversity in members bringing a wider range of experiences and a different set of perspectives.  But there are two problems with the way this statement is then interpreted.  Firstly, it is too often restricted to a male/female debate which ignores the many other relevant ‘groups’ - race, age etc. so it becomes a very narrow and often patronising "let's just get a woman on board" conversation. Secondly, it is often stated as being an objective in isolation of any other factor whereas in fact the most important issue is the quality of the individual and their ability to contribute - not simply whether they improve the diversity.

“I believe the board must pick the most able people and not be swayed by positive or negative discrimination that has been designed to deliver a more diverse group of people.  I absolutely believe that diversity will achieve better results but achieving it should not in itself be seen as delivery of a better result.”

As many have asserted having a diverse board is not just about ticking boxes, it is about getting real value for the business.

Genie Turton, Associate, Criticaleye  says: "It is one of those now universally acknowledged truths that a board that brings people from a variety of different backgrounds and experiences together has more potential than one that simply consists of the usual suspects. But it is just potential. All boards need to work to ensure they are really effective, and diverse boards need to work even harder because people assume that, having got a diverse mix - having ticked the boxes -they have done the job. For example, sometimes people from different backgrounds may feel under even more pressure to conform. There may sometimes too be differences in values that have not been picked up in the recruitment exercise. Shared values are critical and their absence can cause problems - it is diverse opinions, experiences and viewpoints that add value." Genie is a former senior civil servant who now sits on boards of both private and public organisations such as Wates Group and the Historic Houses Association.

Tellingly, it is not gender or ethnicity which is most discriminated upon in the boardroom - it is lawyers. No one seems to want a lawyer on their board!

Five practical steps to diversity:

  1. Define what sort of diversity you want – gender, ethnicity or socio-economic groups, educational background
  2. Think differently about how you recruit and appoint – look outside the usual sources
  3. Think about outside help – professionals may present candidates who you might not otherwise think of
  4. Learn to recognise talents that are not like our own and not from our own culture
  5. Keep trying – it will not be easy to find the right people first time around

If you would like further information on today’s topic please look at the Insights page of the website. In our eye to eye films Alison Carnwath, Chairman, Land Securities, says that a truly global company should have a diverse board that represents the globalisation.

Please get in touch if you have any comments about the issues in today's update.

I hope to see you soon,

Matthew