Diversity and board performance

The board’s fundamental role is to act in the best intuerests of the company and, in particular, to govern the company so that it creates and adds value.  This requires a governance culture that leads the company to identify and take advantage of change as its business environment continuously evolves.  That culture also needs to be able to actively and productively challenge and hold management to account, and to ensure effective compliance.  This requires a board of individual directors who, between them, can make a variety of different contributions while working together to direct the company.  That is how diversity contributes to board performance.

However, there are many facets of diversity that can be brought to the board table:  different skills, different perspectives, different knowledge bases, different life experiences, different approaches to issues, different ways of dealing with people and getting things done.

The challenge for a board chair is to bring together, on an ongoing and evolving basis, the right mix of diversity that a company needs at the board table.  This has four elements:

  • identifying what diverse composition is required on the board,
  • considering the succession of the current board (see also my post on director tenure and board appointments),
  • seeking out the best individuals, taking care to avoid unconscious biases and other limiting behaviours, and
  • marshalling the diversity of contributions so that they are focused on achieving the company’s purpose.

An important point to note is that the direct performance benefits of diversity cannot be reliably obtained by incorporating variety for its own sake, nor by proportional representation.  A cake baked from ingredients randomly picked from the pantry, or in proportion to their quantities in the pantry, is unlikely to be a bake-off winner!

However, diversity is not all about immediate performance.  Building governance talent and overcoming longstanding inequalities and prejudices are “bigger picture” reasons to encourage diversity at the board table, and these also are ultimately in the best interests of the company.