The Importance of Diversity on Boards
For a long time, boardrooms were commonly jovial, affable places where board directors were like-minded and knew each other well. An agreeable atmosphere is certainly nice, but it can cause some unintentional problems. Where everyone usually agrees, everyone tends to continue to agree and the group becomes exceedingly insular. Tight-knit boards often feel like they have an obligation to go along with the CEO or the executive director for various reasons. Some board directors may feel that it’s the right thing to do, others don’t want to veer from the crowd and others are just happy to go with the flow.
Good governance doesn’t call for dissension in the boardroom, but it does call for diversity. When governance is good, it’s a benefit to the CEO and the organization and all its benefactors. The benefits of diversity on boards become more apparent as boards become more accustomed to it. There are a lot of good ideas circulating about the best ways to bring diversity into the boardroom. Best practices for diversity of board composition are still evolving. Big changes in board recruitment call for modern governance practices and digital board management solutions.
Looking Good or Just the Appearance of Looking Good?
Board directors have many choices in whom they select to serve on their boards. Appearances can be deceiving. It may be easy or tempting to build a board that has power and prestige to present a good image. CEOs like a compliant board that’s easy to manage and that doesn’t push back too much. Those are also the kinds of boards that do just enough to get by, rather than doing enough.
Best practices for good corporate governance require having purpose in governance and not just being compliant. A diverse board can be amicable and still take part in robust discussions where active listening, multiple perspectives, challenging ideas and asking the hard questions rule the day.
The True Value of Diversity on Boards
Robust discussions about challenging issues require deep insight, multiple angles and collective experience. That’s why the best boards are the most diverse boards.
Many different variables come to mind when attempting to describe and define diversity, such as:
- Age
- Ethnicity
- Gender
- Skills
- Experience
- Competencies
- Philosophies
- Life experiences
- Race
- Religion
Russell Reynolds & Associates sought to discover how directors view diversity and how directorships open up to a diverse group of candidates. In a study with a broad span of board directors from Fortune 250 companies, they learned several insightful things about the importance of board diversity that go beyond the bulleted list above.
Diversity and the wide range of perspectives that accompany it are critical to good corporate governance.
Diversity reflects the real world. Businesses and organizations have a diverse set of clients, customers and stakeholders. Bringing diverse perspectives out of a group means tackling the same idea from various angles. Great ideas often emerge when board discussions disrupt common thinking patterns. New perspectives make companies open to the needs of a wider array of groups.
Getting multiple opinions is good common sense. If you think about it, there is much benefit in getting a second opinion in the event of a serious medical issue. This is especially true when considering discussions about risks, consequences and the impact of board decision-making. Issues are complex and risks can present from an infinite range of sources.
While shareholders are of prime concern, boards need to consider all their stakeholders because they support the processes and activities that support the shareholders’ expectations.
Successfully meeting the continual challenges and complexities of businesses and organizations requires having a diverse set of competencies as a primary resource.
We live and work in a world in which there are often no clear answers. Boards need members with a range of experiences to help them anticipate change, assess risks and discover opportunities. There may be more than one right answer and multiple perspectives will result in more meaningful, strategic decisions. The outcome of having a diverse board will result in productivity, sustainability, and an improved brand and reputation.
Boards will gain a greater comfort level with diversity the more experience they have with it.
The board directors who were interviewed agreed that the benefits of diversity were apparent. Participants in the survey described diversity and inclusion as being important to the business agenda and as just being the right thing to do. The culture about board diversity begins at the top with the thinking that being different is a good thing and that challenging the status quo is a healthy board activity.
Gender diversity opened some opportunities for women that they may not have otherwise had. Women have gained greater acceptance on boards once they had a chance to prove their worth.
Strategies to influence gender diversity are still evolving.
Board directors in the survey were clear that it was easier to get a board position when they were well-acquainted with someone who valued their skills, abilities and business acumen. These days, board directorships are easier to come by as a result of how you know someone rather than just knowing them. The focus on diversity is more than the demographics that describe the term. There’s a desire for board directors who meet the diverse characteristics and who also have the potential to improve the board’s performance.
Women noted that they still face discrimination due to stereotyping in certain arenas because of outdated thinking and practices.
Modern Governance Supports Modern Approaches to Diversity on Boards
Even the best tools can become outdated over time. The same is true for the tools that boards need to do their jobs effectively. Diversity on boards requires a modern approach to governance. The tool of choice for today’s boards is a board management software program by BoardEffect. BoardEffect answers the call for modern solutions for diverse boards of organizations with different structures, missions and goals. BoardEffect’s platform opens up secure communication while enhancing efficiency. The modern approach to governance helps directors make informed decisions that lead to better outcomes.
