Diversity is well-established on the boardroom agenda—but many boards are still far from diverse.

The number of women on FTSE 100 boards reached 30.2% in 2018, according to the third report of the Hampton-Alexander Review, the business-led initiative supported by the UK government and successor of the Davies Review. If progress continues at the same rate, the FTSE 100 will meet the 33% target for women on boards by 2020.

But the review also found five companies in the FTSE 350 with all-male boards, little change in the percentages of female CEOs or chairs, and 74 companies with only one woman on their board. In the FTSE 250, women account for just 24.9% of boardroom directors. These companies will need to ensure that 50% of all available appointments go to women to meet the 33% target by the end of 2020.

Also of concern is the limited diversity of people from other (non-UK) nationalities or cultures on top company boards. When independent think tank Global Future analysed this aspect of FTSE 100 boards in August 2018, it found that directors from emerging markets filled just 7% of positions—despite trade with these markets accounting for a quarter of British exports. It concluded that “although UK firms are more internationally diverse than their counterparts around the world, there are clear signs that they may be underprepared to gain penetration beyond traditional markets”.

Clearly there is more work to be done if boards are to become genuinely diverse.

Why board diversity matters

Interest in developing diverse boardrooms reflects a combination of both commercial and social factors.

There is now a widespread expectation that all individuals should be able to succeed on merit in business—and that includes taking seats around the boardroom table.

Commercially, there is little disagreement that diverse boardrooms are associated with enhanced performance. McKinsey’s 2018 report, Delivering Through Diversity, based on data from over 1,000 companies covering 12 countries, found that the statistically significant correlation previously identified between a more diverse leadership team and financial outperformance continues to hold true.

Companies in the top quartile for gender diversity in their executive teams were 21% more likely to experience above-average profitability than companies in the fourth quartile. Companies in the top quartile for ethnic/cultural diversity on executive teams were 33% more likely to outperform on profitability.

And there is a penalty for low diversity. Companies in the bottom quartile for both gender and ethnic/cultural diversity were 29% less likely to achieve above-average profitability than all other companies. As McKinsey says, “not only were they not leading, they were lagging”.

The benefits of diversity

Various research studies identify a range of benefits from diversity that help to improve business performance. More diverse companies are better able to:

• attract top talent;
• strengthen employee satisfaction and motivation;
• avoid “groupthink” and so improve decision-making;
• understand customer needs and preferences (including customers in different markets);
• reflect society and secure their licence to operate.

Diverse boardrooms are now seen as good business practice—supporting enhanced decision-making, market understanding and employee engagement. Regulators and investors also see the value in board diversity, and are willing to engage on the issue where weaknesses are identified.

However, increasing diversity isn’t an overnight task. It takes commitment, clear policies and goals, and investment in building the talent pipeline.

We are therefore delighted to provide our readers with a complimentary e-book guide The Path to Board Diversity, produced by Board Agenda in association with our partner Diligent, which outlines key steps for firms to develop a more diverse board.

This concise and practical guide distils expert advice from recent research studies, regulators, leading investors and renowned experts and proposes how firms and boards can become more inclusive and diverse in ways which will ultimately lead to improved business performance.

Download the e-book guide The Path to Board Diversity here.