Three factors that are shifting board diversity to ‘business as usual’
Kieran Moynihan, Board Excellence
Efforts to diversify boards have now been going in earnest for over a decade. Progress has been made, but I for one am eager for the day when we no longer need government and institutional investors to cajole boards on the value of board diversity. And I am optimistic. I have worked with many boards in the past two years who have ‘got religion’ regarding the gaping holes in their board composition. But what has converted them?
The impact of COVID-19
Firstly, for most boards, COVID-19 has been an acid test of their effectiveness, leadership, and resilience at a time of extreme crisis. I have noticed that many of those who have struggled most are boards with limited diversity (gender, age, sector, ethnicity, thinking style and reflective of customer demographics and backgrounds). Boards who have excelled are those with non-executive directors (NED) bringing value in the form of creative solutions to severe strategy and business model challenges; an understanding of the impact on customers and employees; and a vibrant range of thinking styles to enable the board – in partnership with the executive team – to imagine a very different future for the organisation.
Understanding the importance of embedding ESG
What boards need is a vibrant mix, combining long experience, leadership and wisdom of the more ‘traditional’ mould of NED with younger diverse NEDs who have digital DNA, truly understand what it means to embed environmental, social and governance (ESG) criteria into an organisation and have deep insight into the mindsets of purpose-driven customers and employees committed to the flexible working paradigm. This ‘new’ style of NED is far more likely to reflect demographic diversity.
Whilst COVID-19 may have accelerated this shift in board culture, in the coming decade, ESG could become the single most significant change catalyst to embed it. In evaluating and supporting boards week-to-week across the world, those that impress me most have a triple-helix in their DNA of customer-centricity, employee engagement, and a deep commitment to ESG and ‘doing the right thing’. These boards also have a diverse mix of high-calibre board members, generalists, and sector specialists with a great balance of robust intelligent oversight and outstanding support to their CEO and executive team. In addition, modern progressive boards have a core modus operandi of servant leadership and the most profound respect not only for their shareholders but their employees, customers, and broader partners in society. I believe that purpose-driven servant leadership by the board will become the defining paradigm of organisations that thrive in the coming years.
Learning from boardroom scandals
Thirdly, but by no means least, there continues to be a seemingly never-ending cycle of boardroom scandals. The realisation is dawning that no matter how much you revise/strengthen corporate governance codes and company laws, there will still continue to be significant potential for governance failure in the absence of a sharp highly effective board and committees, such as audit and risk, at the top of their game, together with the right culture and highest standards of ethics. It’s encouraging also to see a greater level of annual assessment of the effectiveness of the Board Chair and NEDs - progressive boards are setting the bar high on each NED pulling their weight and adding serious value. There has never been a greater spotlight on the leadership and performance of Board Chairs.
One characteristic of many ineffective boards is the bad habit of leaving in place under-performing board directors - which also seriously impacts their ability to improve diversity and bring in critical new skill sets. However, this is starting to change. There is now a strong trend emerging of shareholders, institutional investors and broader stakeholders asking far more searching questions about whether the board is walking the talk on assessing and improving its own performance – as well as replacing board directors who are not performing.
You will soon see a greater degree of refreshing the board of directors, with under-performing directors replaced and a more robust performance culture instilled to ensure that the board truly excels for shareholders, employees, customers and stakeholders. And more diversity, in the broadest sense, around the board table will be the natural result.
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