Diversity at the board level: what’s the hold-up?

The arguments for more diverse boards have been well-rehearsed. More diverse minds and cultures at the boardroom table will make a company better-equipped to make better decisions for a complex, fast-changing world.

The evidence for this continues to mount, too, as Mckinsey has reported,’ Our latest report shows not only that the business case remains robust, but also that the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time.’

We are now truly in a world that integrates purpose and profit, one that seeks to gain the edge through its people and its relationships with stakeholders.

All eyes on board composition

In this new world, institutional investors and other stakeholders are also increasingly scrutinizing the composition of the boards of those companies in which they invest.

“The level of board diversity is a critical component of that scrutiny”, says Klaus Hansen, Partner at Odgers Berndtson Germany.

There is interest from the German State, of course, with its legislated quota for female board members. This, together with other initiatives, has contributed to an upward trend in women’s representation on executive and supervisory boards of major companies in Germany continuing in 2022. However, the overall momentum has slowed yet again.

Growth on executive boards in particular has slowed, as the most recent DIW Berlin Women Executives Barometer shows.

Balancing the board, slowly

The European Parliament has formally adopted the new EU law on gender balance on corporate boards. What this means, is that by 2026, companies will need to have 40% of the underrepresented sex among non-executive directors or 33% among all directors.

Those figures will prove quite a stretch for many sectors.

In banking, for example, the European Central Bank (ECB) reports that ‘out of the 361 CEO appointments made between 2020 and 2022 at the significant institutions (SIs) directly supervised by the ECB, as well as at their subsidiaries, more than 300 were men, as the ECB has observed. Also, in the same period, only 36% of members of boards newly appointed in SIs were women.’

Poor board scores

Another perspective comes from the 2022 German Diversity Index. It evaluated the diversity of the board of directors and assessed the commitment to diversity of 16 of the DAX 40 companies.

In this, the diversity in the current board composition was evaluated in terms of disabilities, gender, generation, ethnicity, social mobility as well as sexual orientation and gender identity. Points were also awarded if a board member is personally responsible for diversity in the company and if the board members’ diversity goals are bonus relevant. In addition, there are points for companies that have documented their diversity strategy.

The bad news is that the average number of points  achieved was only 35% of the possible points.

No company achieved full marks in this category.

So, however way you look at it, companies have plenty of work to do, as gender parity remains a distant prospect in too many places, including at the board table.

Questions beyond the numbers

Looking beyond the numbers, however disappointing they might be, many companies are willing to change, but are not entirely sure how to proceed.

“Each board will have different challenges. And will have to answer different questions”, says Nicola Müllerschön, Partner at Odgers Berndtson Germany.

KPMG raise many of these: ‘When is a board sufficiently diverse? What is the best mix for the company? What do my stakeholders expect? What are the expectations as they relate to different types of backgrounds? Is a board sufficiently diverse if it includes three women, but no minorities? What about a board with minorities, but only one woman? Is sexual orientation relevant as an aspect of board diversity?’

These are difficult questions that require clear answers and measured guidance, but do demonstrate that board diversity is not simply about demographics, but that it has many other rich dimensions, and serious dilemmas.

Key figures

Whatever the board, the CEO is key as the main light-bearer for diversity, and is the most important model of behavior and attitude on the board, and across the whole company.

If that’s step one, then the next one is that the board needs to implement targets for diverse membership.

It would also be wise develop a pipeline of diverse board candidates through director advocacy, mentorship and training

Then, when it comes to actual recruitment, every director post must include a significant number of diverse director candidates.

“There is, of course, a great deal of pressure to recruit wisely and fairly”, states Klaus Hansen.

We understand that probably more than anyone, and so begin with having diversity in our midst.

Our team in Germany includes people with backgrounds from over 18 different countries. That diversity brings with it a great range of perspectives, insight and experience. In addition, international candidates are included in over 50% of our search mandates.

We also offer specialist Inclusion and Diversity Consulting from experienced I&D specialists.

Diverse workplace culture

Our aim is always to help clients make more informed choices to enable a more diverse workplace culture at all levels.

This might mean helping them remove ingrained practices and thinking from role descriptions in order to deliver a more diverse pool of talented candidates.

For example, often the client asks for someone who has 15 years of sector-specific experience. But with a little creative, lateral thinking, candidates from other sectors could deliver equally relevant, broader experience and contribute a different perspective.

Yes, there is some way to go on diversity, but like so many others, we’ll do what we can, in partnership with our clients, to make the future far fairer.

To discuss your current board diversity plans, or your wider talent requirements, please don’t hesitate to get in touch. We’ll be keen to hear from you.