Companies have begun to boast about their achievements in making their boardrooms more diverse. Research regularly reveals diversity is improving. But there is still some way to go.
Whether on gender, ethnicity and culture, or social background, diversity could still be improved across a swathe of companies. But while the headline issues are frequently explored, the subject receiving less attention is the actual process of improving diversity. In other words, the problem may be easily diagnosed and the causes identified. What boards really need, however, is the treatment.
A new guide from Board Agenda, in partnership with Diligent, The Path to Board Diversity, has captured the leading experts’ insights to provide a roadmap through the steps necessary to build a diverse board that delivers high performance.
“Increasing diversity isn’t an overnight task,” the guide says. “It takes commitment, clear policies and goals, and investment in building the talent pipeline.
“However, leading companies are making progress, particularly in relation to gender, showing that change can happen when business leaders back strategic intent with practical actions.”
Diversity matters. First there is an expectation that people should be able to succeed on merit—including potential boardroom members—regardless of their gender, ethnicity or social background.
Secondly, there is now substantial evidence that diverse boardrooms are associated with enhanced performance. A 2018 report from McKinsey’s management consultancy, Delivering Through Diversity, found a “significant correlation” between a more diverse leadership team and financial outperformance.
The study also found a penalty for low levels of diversity. Companies in the bottom quartile for both gender and ethnic/cultural diversity were 29% less likely to achieve above-average profitability.
Governance codes have highlighted the need for greater diversity through appointments and succession planning, as has the European Union’s Directive on Non-Financial Reporting; there is ample evidence investors have taken the issue to heart in their engagement with major companies.
The guide explores the key steps to achieving a diverse boardroom: setting policies and goals; creating a diverse and inclusive corporate culture; making diversity visible for the public and for employees; nurturing the talent pipelines; recruiting with diversity in mind; and providing training on diversity for leadership.
The path to board diversity
The first step explored by the guide is the need for coherent policies supported by relevant goals. Specific goals might include increasing gender and ethnic minority representation at board level, and among management. There might be additional goals for junior recruitment and retention.
“Goals should be measurable and linked to remuneration, for example by tying the achievement of diversity targets to executive bonuses,” says the white paper.
Successful development of diversity will also include the right culture. This may involve “positive actions” to encourage individuals from underrepresented groups to apply for key roles, or for training to build key skills.
Companies should also be seen to be diverse. As the white paper points out: “Transparency helps to drive change.”
Nurturing a significant talent pipeline is also an essential step toward a diverse board. Companies should consider how they can establish a way to draw on a wider pool of talent and develop methods for identifying potential.
The white paper says boosting the talent pipeline “starts with developing a clear picture of the current workforce… and understanding current and future skill requirements.”
Once the talent pipeline becomes a critical area, the obvious related question is whether a company’s recruitment processes are fit to support the development of diversity. Companies will need to question whether current policies and procedures could be limiting the diversity of applicants.
Lastly, specific training on why diversity and inclusivity is important can help embed the right values and strategic goals within a corporate culture. This can help overcome “unconscious bias”, cited frequently in research as an obstacle to improved boardroom diversity.
Diversity in the boardroom is viewed widely as good business practice. It supports decision making, offers better insight into markets and can foster employee engagement. But it does take deliberate action. Boards must equip themselves with the right tools and ask themselves searching questions. Taking the right steps on diversity can make for a better, more successful business.
To read The Path to Board Diversity in full, click here.