Building a profitable business is a complex process. Numerous factors, both internal and external, come into play which all add up to moving your accounts into the red, or the black. There is no single ‘magic bullet’ that can turn a failing company into a market-leading profit maker. And board diversity - among executives or non-executives - is too small a factor alone to achieve statistical significance as a causal factor in an organisation’s success.
What numerous studies have found, with large data sets over a period of a decade or more, is - to my mind - an indisputable and very strong correlation between board diversity and profitability. To name just a few, take a look at Credit Suisse ‘Gender 3000’, McKinsey’s ‘Diversity Wins’, most recently LBS, SQW and the FRC ‘Board Diversity and Effectiveness in the FTSE350’.
Is this correlation there because diverse boards are driving more profitability? Do women make for better board members? There are simply too many factors at play to get conclusive proof.
The recent LBS, SQW and FRC study found companies with gender-diverse boards had better EBITDA margins, stock performance and less shareholder dissent. The study also found that ‘better-performing firms experience greater benefits in terms of financial performance from gender diversity’ (p8) - a clear indication that board diversity alone does not drive profitability.
But it does seem very likely that companies will be more profitable where individual’s performance more closely aligns with progression into senior leadership (no one has yet found evidence - statistically significant or otherwise - of a gender performance gap).
That boards who recruit openly and for specific expertise, not finding the first ‘good enough’ person in an established network, will provide more balanced and expert judgement. Diverse board composition is a very good sign of both of these being the case.
What this robustly evidenced correlation does refute is the claim that somehow diversity and merit are opposing factors in recruitment decisions. Recruiting a more diverse board doesn’t mean you aren’t getting the ‘best’ people or that you are trading off your companies’ performance for the sake of appeasing diversity advocates (like myself!).
So for those questioning the need to diversify their boards in the absence of conclusive proof of a causal link, I ask: What have you got to lose?
If you are wondering how to recruit more diverse NEDs, do take a look at Women on Boards Vacancy Board. We connect organisations from all sectors with quality candidates, often as part of a wider recruitment mix. Most recently here in the UK we were delighted when a tech plc selected one of our members as their new NED.