The Covid-19 pandemic has helped crystallise the need to renew efforts on boardroom diversity, according to a report from ethics experts.
Researchers from the Institute of Business Ethics (IBE) say that while progress has been made on introducing gender diversity into the boardroom, the process has not reached its full potential and there are lessons to be learned in the drive for other forms of diversity.
Reflecting on the effects of the pandemic on boards, the IBE report suggests it has thrown a spotlight on the relationship between companies and their stakeholders and this, in turn, has increased the need for corporates to ensure their boards are diverse. This is not necessarily for ethical or compliance reasons, it says, but because diversity is a “performance-enhancing tool”.
According to IBE director Dr Ian Peters, 2020 has pushed diversity to the “prominent role it deserves”. “But it is important that new focus on boardroom diversity is not just about hitting quotas but about the embedding of real diversity in all its dimension,” he says.
Among many issues contained in the report are two that stand out: the pandemic as a watershed moment; and the lessons to be learned from the drive for gender diversity.
Covid-19 and boardroom diversity
Covid-19 has changed the business landscape. Companies can now expect to be “challenged more robustly”; boards may need to take more nuanced decisions where “right and wrong” are not obvious; shareholders will be “more forceful” and “active”; customers and employers are more “engaged”; supply chain, human rights, climate risks and community relations will receive a more “heightened external focus”.
“The collective skillset of a board will need to change and adapt to all of this,” says the IBE report. “Even before Covid-19 there was already concern from some board directors that boards did not have the appropriate skillset.”
The report adds: “The multidimensional impact of the Covid-19 pandemic has added to the urgent need to have a broader range of expertise on boards to address global health issues and future pandemics and in dealing with existing systemic risks such as climate change [and] other emerging issues.”
But there are lessons to be learned, especially from the project to improve gender diversity. Widespread campaigns and pressure from government, regulators and campaign groups have seen the numbers rise and targets have been met. But there remain issues, according to the IBE.
Many companies have assumed a “one and done” approach to bringing women onto their boards, while executive committees remain dominated by men. Some all-male boards remain, while the number of women chairing or in the CEO position remains low.
The IBE report reveals that the FTSE 350 has only 35 female chairs, 14 chief executives and 49 CFOs, with 30% of the boards still falling short of the 30% target for female board directors.
Beyond gender and race
The IBE says the gender diversity project has been a “qualified” success while the “opportunity to tap into a broader reservoir of cognitive and experiential diversity has not yet been maximised”. The report suggests this is because many companies have focused on “compliance” while failing to recognise that “gender, as a discrete factor of identity diversity, cannot deliver all of the benefits of diverse thinking”.
The IBE is at pains to point out that diversity goes beyond gender and race. Board members representing LGBTQ+, liability groups and social mobility are also necessary boardroom voices.
The IBE has a number of recommendations, but also a warning. Boards that have “not embraced diversity are more at risk of groupthink at a time when adaptability, collaboration and innovation will be vital for economic recovery”, it says. And this will come with an aggressive dose of accountability exercised by “shareholders, non-governmental organisations, government, media, customers, employees, suppliers [and] creditors”, as well as other stakeholders.
One thing is for sure, the IBE sees boardroom diversity as a project that is far from finished. Boards can expect more pressure on this topic in the coming years.