by Sean Kearns, Editor-in-Chief, Longitude
Few would disagree that greater board diversity is better for business. But how much progress is really being made?
What do you see when you picture the average board meeting of a large corporate? Hopefully the familiar image of a group of men of similar ages in similar suits is fading into the background.
But new research among Financial Times readers who currently sit on boards suggests there is a long way to go. The survey, conducted by Longitude, a Financial Times company, shows 45% agree their boards have been successful in appointing members from a wide variety of professional and personal backgrounds. However, four in 10 say much greater diversity is needed among their board’s members – in terms of age, race, educational background, culture, experience and gender.
Industry and regulatory pressure are making the need for diversity increasingly hard to ignore. The FCA recently announced a new benchmark for UK companies to ensure that at least 40% of board directors are women, and at least one director is non-white. Meanwhile in the US, Goldman Sachs says it will only underwrite IPOs in the US and Europe of private companies that have at least one diverse board member. And listed businesses headquartered in California must have at least one female director.
A consensus on change
The message is clear: non-diverse boards will be held to account. But it’s not just regulations that should be pushing companies to expand their perspectives. Today, boards are under pressure to be more flexible, more agile and more able to detect risk and opportunity than ever before. Diversity of thinking is a matter of performance.
Randall Peterson, professor of organisational behaviour and academic director of the Leadership Institute at London Business School, says there is a need for more dynamic boards. “We want boards to be much more active, more probing, to have a better understanding of how the business operates, to ask better questions in the boardroom.”
Innovation and progressive action come from diversity of thought and perspectives. In its wide-ranging report on The Ethics of Diversity, the Institute of Business Ethics says “the opportunity to tap into a broader reservoir of cognitive and experimental diversity has not yet been maximised.”
Gender diversity on boards has rightly been under the spotlight for some time. The latest research from Egon Zehnder’s Global Board Diversity Tracker shows 23.3% of board positions are now held by women globally, up from 20.4% in 2018. Clearly, things are moving in the direct direction, but equality is a long way off – the research also found that one in 10 large global companies still does not have a single female director.
Yet in the research among FT subscribers, 40% agree that greater gender board diversity has improved the performance of their organisations. So why the slow progress?
“One of the barriers to diversity on boards is the way that directors are recruited,” says Ruth Medd, chair of Women on Boards, a global network of diverse non-executive director board members. “Many board roles are still filled through networks of board directors rather through professional searches and recruitment process.”
Expanding the available pool of candidates and re-assessing the required skills and experience is a start. Firms must be more proactive in the way they fill their board roles if they’re going to stand by their commitment to diversity. And that applies when it comes to addressing a lack of cultural diversity as well. The substantial societal shifts and worldwide activism of the last 18 months have pushed many to take action. According to Heidrick & Struggles, the share of racially and ethnically diverse appointments on Fortune 500 companies has grown. But US Equal Employment Opportunity Commission data suggests black Americans still hold only 3% of executive or senior level roles in companies with 100 or more employees.
Boards must have the right mix of skills to manage the complexity of the business and sector in which they operate. To do so they need to evolve the way they recruit and develop their board members. Only then will boardrooms start to reflect a more representative picture of the world around them.