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At Lansdowne Board Intelligence, we’ve been at the forefront of helping to improve diversity, and our commitment remains unwavering. In the last two decades from the early days of holding Board Chair & CEO Roundtables to introduce why diversity is important – a novel concept at the time, to today’s environment where diversity discussions are a fixture in boardrooms across the country, much has changed. However, the term “diversity” has unfortunately become somewhat nebulous, overused and misapplied.
Diversity is now an umbrella term used to describe the variety of skills, competencies, and perspectives, a board is seeking in its composition, as well as reporting on gender, racial, ethnic, age, and other social diversity. causing confusion when reporting on diversity progress and board composition. In addition, changes in voting policies from proxy advisory firms such as withholding votes for nominating and governance committee chairs whose board lacks diversity, may on the surface, appear like a good idea to spur action; but it has unintended consequences. Conducting a one-dimensional audit of the balance of gender, race, ethnicity, and other diversity of a board can drive unwanted behaviours among existing directors to keep their roles, and most certainly encourages a rote, box-ticking mentality, which may contribute to the appointment of directors who are ‘unfit to sit’.
Hollow homage results in tepid impact, neutralizes purpose and meaning, and ultimately detracts from creating stronger board effectiveness and performance.
How to Rectify the Problem
Improving the balance of men and women on boards is NOT mutually exclusive from enhancing the capabilities of boards. However, boards should not lead with diversity requirements, the focus must be on rigorously assessing the competency of prospective directors.
Boards need to reform and recalibrate their skills matrices, and recruitment and selection process to ensure it is objective, vigorous, competency-focused, consistently applied, where biases are minimized. It must avoid the outmoded, self-defeating, “impression-based” practices of the past, which back candidates who are personally better liked or ‘appear’ to ‘fit’ well with the board — regardless of their ‘true’ ability, which causes qualified but lesser-known candidates to be overlooked.
When reporting on diversity, it is necessary to be more definitive and clarify the language so as not to cause confusion and to mitigate misleading messaging. A clear delineation needs to be established between the variety sought in the amalgam of experience, knowledge, skills, and competencies versus having greater equity in the balance of gender, race, ethnicity, and ages.
Investors and their advisors are encouraged to apply broader, more disciplined, and integrated thinking as to the concrete and measurable actions the corporation is taking to affect meaningful change. In addition to a prescriptive audit of the gender, racial, ethnicity, and ages make-up of a board, it is necessary to widen the audit to review steps taken by the governance and nominating chair in the five key areas that drive impactful change:
- The existence of diversity policies and objectives to increase representation.
- A policy outlining the process the board undertakes to recruit new directors, and whether it is executed through an external expert.
- The existence of term limits.
- The process the board undertakes to evaluate the performance of directors, and whether it is executed through an independent, external expert.
- The use of competency matrices with metrics and scorecard.
The Benefits of Cognitive Diversity are Well-Known
Research has shown how organizations with greater leadership diversity outperform homogeneous ones. Diverse teams:
- contribute to better decision-making;
- exhibit higher returns on equity, higher valuations and higher profits;
- demonstrate increased innovation;
- achieve a more robust understanding of opportunities and risks;
- avoid the propensity for “group-think;”
- improves employee engagement and performance;
- enhance governance and sustainability; and,
- enables the attraction and retention of more diverse talent
Organizations with a greater balance of men and women in leadership positions outperform homogeneous ones. When leadership teams are comprised of men and women who possess different thinking and communication styles, a blend of differing, and relevant skills, competencies, experience, knowledge, and backgrounds, they are more likely to avoid ‘groupthink’ and thus achieve a more robust understanding of opportunities, issues, and risks. Consequently, difficult topics will be more deeply discussed and challenged, the quality of decision-making will improve, governance will be more effective, and overall performance will be stronger.
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