How diversity can make your board more effective

The debate on the Higgs report on corporate governance has generated heat and light on the role and responsibility of directors. The issues are contentious, but one crucial aspect has been almost neglected in the debate - the importance of diversity in the boardroom. There is real evidence that a diverse board team can bring competitive advantage.
 
Surprisingly, women make up just 4% of listed company directors. More than 99% of all UK listed companies are chaired by men. Figures for ethnic minorities are more elusive. A survey conducted for the Higgs report showed only 1% of non-executive directors were from black and ethnic minority groups. The problems of widening and deepening experience in the boardroom were among the issues explored at a recent Odgers Berndtson forum with the theme of "Diversity in the Boardroom".

Toolbox for increasing diversity

A breakfast dialogue was led by Laura Tyson, Dean of the London Business School, who was asked by Patricia Hewitt, Trade Secretary, to devise a toolbox for increasing diversity on company boards together with Dame Rennie Fritchie, Commissioner for Public Appointments, who has made huge strides in opening up and improving processes in the public sector. The conclusions were instructive.
Improve prospects

It is important to know why diversity matters. Each board appointment must have the central aim of improving the company's prospects. The new director has to offer added value, or lose credibility. The view that investors are becoming more risk averse might suggest appointing more "tried and tested " types, but there are business benefits from a diverse talented board.

Diversity reduces the risks arising from everyone thinking the same. A monoculture will not always test its own assumptions. That leads to mistakes. A diverse board insures against this. Common sense suggests - as does recent research - that groups that are more diverse in skill, knowledge or experience have the potential to generate more high-quality solutions to problems.

Public domains

Another benefit is having insiders who understand outside views. Investors are the prime judges of a company's management, but companies exist in the public domain too. Boards can be caught out by mood shifts in the press, in public opinion, or in a regulator. Directors who understand a range of views can help address them and help prevent change being forced on the company from outside. Every board sends messages to customers, clients and employees. Many will look at a company's board and may prefer a competitor that matches their outlook.

Diversity is not just a "women's issue". However, there are now just enough women directors to consider how they got there, and what stopped others.

What everyone at the breakfast reported and Dean Tyson's group has confirmed is what headhunters know: the lack of women on many boards is not a function of supply. There are many excellent women who could serve on boards in any sector. What is sometimes lacking is confidence. Chairmen may still say "I know we should have a woman on the board, but I don't think my other directors are ready yet".

This is increasingly puzzling. Directors work with senior women every day, heading company divisions, or providing corporate finance, audit or legal advice. There are often women on their competitors' boards. I suspect that the directors are more ready than their chairman thinks - if the new non-executive director has experience and skills that the board needs.

Dean Tyson's call for companies to review their board requirements rigorously should be welcomed by any board seeking to improve performance. For many years, Ian Odgers pioneered a formal, professional approach for non-executive appointments. We survey the board with the chairman, and assess its combined strengths. Does this fit where the company is, and where it is going? What specific skills or perspective would strengthen the board?

Look more widely for directors

Paradoxically, looking widely often starts with defining the criteria more tightly. A vague search for "an experienced executive" will often turn up the nearest, familiar faces. Conversely, searching specifically for someone who has run major capital projects over £100m, say, will take you into a wide range of industries, including some public services, and will bring new people to light.

It is vital to remember that you are recruiting to a team. Some people think this implies  homogeneous boards, where everyone fits in because everyone is the same. But in building an effective team the opposite is true. For a team to be more than a sum of the parts, the parts should be complementary and balanced.

Mix of skills

It can help to consider appointments in groups - whether or not they commence simultaneously. Looking at two or three appointments together makes it clearer that the best solution isn't three people with identical experience and backgrounds. The company will get the most value from a mix of specialist skills.

Some appointments don't work as well as they might because of communication problems. Contrary to the old wives' tale, successful women really don't behave like men. Reading women's behaviour as if they do can create misunderstandings. A woman having a conversation will nod frequently, to show she is listening. A man only nods when he agrees with the speaker. He can get a shock when she - suddenly, as he sees it - raises a major misgiving. Other ways in which women behave can come across as nervousness, or lack of conviction, to men.

There is room for both to understand better how they communicate. That has to be a founding principle in any diverse environment. Increasingly, people are seeking training, in adjusting the messages they send out, and in interpreting what they see and hear, and the Tyson group recommends a review of training for board members.

Formal training and the experience of emerging senior managers who have grown up with diversity - in their colleagues and careers - will help companies realise the business benefits of more diverse boards.

Board contribution needed

Just as familiarity is no guarantee of quality, not every "non-traditional" person is right for your board. Nor is being different enough in itself - the board is not a committee of representatives, each arguing their corner, but a collegiate team, sharing responsibility for decisions. All board members need to make a broad contribution. Focused, professional search can help immeasurably in finding people who are of board calibre and also offer  relevant and useful new skills and perspectives.