Companies that pursue diversity in boardrooms as a “compliance” issue will fail to see the true benefits, according to a new report from the Institute of Business Ethics (IBE).
In a foreword to the report, The Ethics of Diversity, Mark Chambers, governance director at the institute, writes: “While targets have been essential for demonstrating progress, too many companies have been driven by a compliance perspective (the ‘one and done’ mentality) and have missed the opportunity to broaden the life experience around the table and bring very different ways of thinking into the boardroom.”
Chambers adds that companies which choose to address boardroom diversity elements “sequentially” with a compliance mindset will “not achieve the sustainable business benefits available from diversity.”
The warning makes for a sobering read at a time when diversity remains high on the agenda of policy makers and investment managers. IBE makes a series of 10 key recommendations for companies to tackle diversity among their leadership including, at number one, the need to “embrace cognitive diversity” and a warning that friction-free board meetings should not be “misinterpreted” as “evidencing effective discussion, decision making and oversight”.
The Institute of Business Ethics is not the first to worry about the approach to diversity in many organisations. While boardroom gender diversity has generally improved across organisations, this has been achieved through non-executive appointments; there has been little movement in representation among executive leaders or their immediate reports. There are similar concerns about ethnic diversity, too.
A recent editorial in The Times, by writer and broadcaster Simon Fanshawe, underlined worries about the nature of diversity in the UK. He argues “diversity needs deep thought” in companies “about accurate and effective ways of opening opportunities for talent”.
Missing the point
Elsewhere, academics argue that companies often “hit the target but miss the point” of diversity programmes. Led by Alex Edmans, a professor at London Business School, the team proposed a new measure of “diversity, equity and inclusion” (DEI) which is much less about appearances and more about what employees say about their organisations. Employees were asked questions such as whether they could “be themselves” at work and whether their workplaces were “psychologically and emotionally” healthy places to be.
The research found that high DEI, based on the researchers’ new measure, is only “weakly correlated” with traditional measures of demographic diversity, such as percentages of women and ethnic minorities in senior management and the wider workforce. The project also found low correlation with boardroom gender and minority representation.
When search firm Heidrick & Struggles reported earlier this year, they found that 58% of all board appointments were women in 2022, but only 24% of jobs went to ethnic minority candidates.
Heidrick’s European chief executive, Alice Breeden, said: “Despite the economic climate, there is a need for increased diversity—rather than less—to solve the system-wide problems facing businesses today.”
Other diversity recommendations from the Institute of Business Ethics include ensuring work towards diversity is a “strategic and commercial imperative”; and taking a “critical” look at boardroom culture.
It also suggests reviewing nomination and succession plan processes. The report warns that using “traditional” skills matrices for recruitment is “no protection against groupthink” and unlikely to find candidates with “significantly different life or sector experience.”
Diversity is not easy but evidence points to many boards currently taking short cuts. More sophistication and greater commitment is beginning to look like a priority to ensure solutions are in depth and not just superficial.