August 7, 2015 Boardroom Diversity
Whenever the subject of corporate governance comes up for discussion, it’s a strong chance that sooner or later the topic of diversity will be raised. For from being divisive, drawing board directors from a variety of backgrounds and experiences can help to ensure that proposed strategies receive a full, in-depth and robustly challenged evaluation.
We have previously reported on a number of initiatives which have been designed to improve boardroom diversity, including moves to increase the number of female directors within companies. However, whilst these initiatives have had some measure of success, there is still some way to go. This was evidenced by a recent Grant Thornton report which concluded that company performance is being adversely affected by a lack of diversity among board members.
The report, which took a global view of board culture, diversity and strategic planning highlighted a number of deficiencies in board composition, the perception of board effectiveness and the relationship between board and management teams. For example, whilst boards and management teams are largely in agreement on the need for board members to have relevant industry experience, 30% of managers feel that board members should be currently employed within a particular sector whilst only 7% of board members consider that current experience is required.
One of the strong messages to come out of the report is the need to consider diversity not just in terms of gender but to take a more holistic view which includes areas such as background, culture and experience. According to the report, this not only promotes a more open discussion at board level, it also helps to ensure that the idea of diversity is cascaded throughout the organisation. But there are other strong reasons to encourage diversity including its effect on company profitability. As the report comments “Businesses not encouraging diversity risk being left behind in a slow economic recovery.”
Following on from the need to broaden the perception of diversity the report also highlights the importance of ensuring that there is a robust succession plan in place for board directors. This should not only cover like-for-like replacements but should also take into account changing industry and technological factors which may require a rebalance of board skills and experience. Commenting that “boards without knowledge of modern business processes cannot provide sufficient direction to their management teams” the report suggests that succession planning has risen up the corporate agenda and should now be seen as part of a board effectiveness review.