Diversifying Diversity - the next Board frontier
Nigel Parslow, UK Managing Director, Harvey Nash Executive Search, looks at how boards are evolving their approach to diversity.
Who would have imagined that nearly a decade after the global financial crisis of 2008 we would still be amidst a global slowdown and that the UK, in particular, would be on a journey to exit the European Union?
According to World Bank data, global growth has slowed significantly and coincided with stagnation in global trade. Latest figures show it at its lowest since 2013. Not even the predictions of top business leaders and economists around a meteoric rise of the BRIC economies have come to pass. At the time of writing, the effect of the EU referendum has perhaps not been as dramatic as was forecast on 24 June 2016, there has certainly been no slowdown in appointments at executive level. With the Brexit process likely to take another two and half years before it is realised, it seems that companies and organisations are operating as "business as usual", but are they ensuring that their organisations are ready for the impact when it happens?
Without doubt, the world has changed dramatically and Boards are forced to face a continually shifting dynamic in both business and governance. Much of the blame for past business failures was directed at the performance of Boards, both for their narrow expertise and their methods of working. It was widely acknowledged that traditional Board membership lacked diversity in the experience of its members, which tended to be based in finance and in the sector where they had their executive careers. The well-established Board characteristics of caution and specialist areas of expertise may well have been the norm for many years but now significant change is demanded by the public, investors, government and indeed Boards themselves. So where were organisations going wrong and are they still repeating past mistakes?
The shortage of women on Boards was highly visible and research established that companies and organisations performed better with more gender balance in their leadership. The need to have different views and a different way of thinking was supported vigorously by Lord Davies in his 2011 report on women on Boards. Today, the make-up of Non-Executives is very different from what it was. The number of women on Boards has progressed from a meagre 12% in 2011 to 26% on the FTSE 100. However, the FTSE 250 and FTSE 350 paint a less successful story, with female directors being circa 20% and 22% respectively.
A recent report from Cranfield University shows that the rate of female Board appointments has dropped to a five year low. Perhaps there are other factors in play? Has gender diversity become over exposed? Is it old news and industry and government agendas have moved on? The simple truth is that diversity has become a broader issue than that of gender.
Commerce has always dealt with change and generally organisations with enlightened leadership have benefited from challenges and emerged from recessions stronger than when they entered. Broadly speaking, successful Boards have remained agile by embracing diversity of functional expertise and diversity of thought. Demands for experience in particular business areas such as export, transformation, digital development and strategic thinking are now seen as fundamental to constructing a Board that can meet the rapidly changing dynamics of a global economy.
This is perhaps most notable where companies and customers are driven increasingly by digital agendas and markets. It is digital that stands out as an under-resourced functional area. Technology is relatively new as a skill set and does not have the history and framework of qualification and knowledge of, say, finance that has been bedded into Boards for centuries.
Digitisation touches every aspect of our lives, from recording our details on the electoral register through to how we buy our groceries. The pace of change in digital is so different from the other parameters affecting business that digital strategy requires a different way of thinking. Put simply, digital is a relatively new discipline and supply lags behind the market need. Technical skills have always been in demand, but Boards need to create a culture, an ecosystem, around digital and digital thinking and this means increasing their functional diversity. If organisations are not disrupting their industries through digital innovation then they will be disrupted - so Boards need to keep pace to survive.
Governance, audit, financial controls and risk management will always remain a significant factor in Board activities. Without this, confidence from the investment community, the public and the politicians would be lost. But as one business leader stated, "Irrespective of what controls and legislation are imposed on companies, the rogues will circumnavigate this." How is it possible to achieve an enlightened, capable Board with true diversity of thought, a breadth of representation in functional areas and fundamentally a way of behaving where everyone respects each other for their contribution and for their opinion? This brings us full circle to the need for Boards to welcome diversity of thought and create environments where every voice can speak and be heard. Where no one person dominates the individual or collective, and where all views and opportunities are considered in balance. This is the only sure way of achieving the agility required to respond to constant change.
The majority of Chairs and Boards know that there is scope for improvement. The only true measure of Board efficiency is how it delivers to its stakeholders during periods of both calm and change. The next best measure is through robust evaluation of how well it delivers on the elements that drive that success. It is essential that employers and the executive search industry consider more wisely how they appoint Board members, how they evaluate the needs of the business and how they appraise the Board and its performance. Agility, diversity of thought, improved team dynamics and humility coupled with strong leadership is the way forward.