Boards that do not embrace diversity may lack the dynamism to compete in today's global market's.
If you haven’t been paying attention to who sits on your board, it is time you do. Board decision making is coming under so much scrutiny that next year the composition of the board of directors may become a major issue for companies to deal with, because more studies are suggesting it does make a difference.
There has been steady pressure on companies to add women to their boards over the years and that conversation has evolved into a larger conversation on adding different types of skill sets to corporate boards. Any number of studies have offered evidence that adding women to a board helps improve governance and now studies are suggesting boards need to make sure they have experts in certain key areas such as finance, technology and risk management in order to ensure they can handle the new realities of an ever-changing marketplace.
Some countries have embraced the idea of board diversity in the case of women – even going so far as to push for quotas – but the US has been less aggressive. Norway was the first country to implement quotas for women, which has had mixed results. According to the GovernanceMetrics International (GMI) 2011 ‘Women on boards’ report, the three European countries with the highest aggregate percentage of female directors are Norway (35.6 percent), Sweden (27.3 percent) and Finland (24.5 percent), so the US has a long way to go.
Just this week, Ernst & Young released a report on board diversity that warns: ‘Given the evidence of the impact board diversity has on the bottom line and the boardroom changes that are taking place outside of the US, diversity should now be a priority for US companies and their boards.’
The report goes further, advising companies that boards ‘need to be prepared to discuss their composition with shareholders. Board diversity has become a priority for many investors. These investors intend to engage companies that do not have women on their boards through dialogue, letter writing and shareholder proposals.’
Dealing with shareholder proposals concerning boardroom diversity and board composition may be the next headache for boards to deal with, so it pays to get ahead of this issue by finding out whether it is a hot button for your shareholders now.
Pamela Jeffrey, founder of the Canadian Board Diversity Council, recently introduced her organization’s Diversity 50 initiative, a database of diverse board candidates in Canada that lists extensive information about their skills, knowledge and behavior. Jeffrey hopes many companies will use this to help solve problems of board diversity and skills composition. There are candidates of different genders, ethnicities and disabilities within the database, all with experience that can help corporate boards.
‘Diversity 50 is specific to Canada but, because we collaborate with GMI, the candidates who are part of Diversity 50 are also part of its database,’ says Jeffrey. She says GMI has a database mostly for US companies but US companies are very interested in international candidates, so her database helps with that effort.
‘We hope corporate secretaries understand there is value to having more diverse boards. We would very much like to make it easy for them to work to create a diversity policy for their board and work to introduce them to men and women who are beyond the traditional talent pool,’ Jeffrey explains. ‘That is what Diversity 50 is designed to do.’
As more databases filled with diverse candidates to select from evolve, there is little excuse for companies to delay making their boards more diverse. As the Ernst & Young report concludes: ‘Boards that lack a breadth of diversity across gender, ethnicity, age, geography and experience – and that are not challenging their composition and effectively conducting board assessment and development strategies – may risk becoming under-performing boards. They may lack the diversity and dynamism required to compete in today’s global markets.’
Clearly, that’s not where any company wants to be.