Board Diversity: What, Why and How

Written by on November 24, 2015 in Board Composition, Board Effectiveness, Governance with 0 Comments

Upland Consulting Board Diversity - Black & White Photo of Locked Door in Stone WallWhat is Board Diversity?

Board diversity has had a lot of press lately.  Mostly it’s been about the encouraging fact that the number of women on listed company boards is at last registering on the gauge. I rejoice in this, and I congratulate those women, but seriously: this is barely scratching the surface.

Why does board diversity matter?  The single biggest trap for boards is groupthink (I’ve written about the perils of groupthink in another blog), and the single best defence against groupthink is diversity.  Diversity of gender, certainly, and also of thinking style, outlook, life experience, career expertise and cultural background.  Gender inclusion is hugely important.  It’s about justice, opportunity and national competitive advantage, as well as board effectiveness.  But if a board is “male, pale and stale”, well gender diversity alone only addresses one of those.

Gender and Other Diversity

There are still nowhere near enough women on boards.  Present and future women directors will make a huge contribution to their boards, and thereby to our economy.  It’s already measurable: research is showing that companies with more female directors tend to be more profitable, at least in societies that aspire to gender equity.

But to start redressing gender balance is just one task in advancing board diversity.  It’s still the case, particularly in the corporate sector, that most directors have been to the same handful of universities, studied the same handful of subjects, and had the same sort of career experiences.  They are often recruited from the ranks of executives who have already spent years working with those same boards and their thinking styles.  I’ve even heard of a board that took the Myers-Briggs psychometric test as part of their self-evaluation (commendably), and they all turned out to have the same profile.  The requirement for “experience” in board recruiting often turns out to mean “we want someone who thinks like us”.

This is not board diversity.  By mid-century, it is likely that three or four of the world’s largest economies will be in Asia.  Where are the Australian directors of Asian cultural background, the speakers of Asian languages, those who instinctively understand Confucian, Buddhist or Hindu norms?  The oil states of the Middle East are rapidly turning their oil wealth into new industries and new investment vehicles.  Where are the Australian directors who speak Arabic and are culturally literate in Islamic societies?   The command-and-control hierarchies of the 20th Century corporate workplace are unravelling before our eyes.  Where are the directors with experience and understanding of the new plug-and-play world of work, the so-called “gig economy”?  Where are the directors who’ve launched a crowdfunded business off the back of an app or an online community?

Why Does Board Diversity Matter?

Board diversity matters because of the particular insights and experiences such a truly diverse director community would have.  It matters even more because, in general, diverse groups perform better at complex tasks in uncertain and fast-changing environments than homogeneous groups do.  Their problem-solving conversations are broader and deeper, and they have broader networks to call on at need.  Their unconscious habits of thought (we all have them) and gut responses pull in different directions, not all the same way, so more options receive serious consideration.  It matters also because a board’s stakeholders – staff, customers, investors and the rest – are diverse in all these ways, and a business and its directors can’t function unless their stakeholders identify with them.

Is there any doubt that a board today faces complexity, uncertainty and fast change?  Then it needs diversity.  Diversity of gender, my word yes, but much more besides.

Other Upland Consulting Resources

Related to the matter of board diversity, these posts may be helpful:

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