A number of studies have demonstrated that greater diversity in the boardroom and organisations will improve business outcomes. However, despite efforts, progress in increasing board diversity has been slow.
By Karen Loon IDP-C and IDN Board Member
With the growing focus by stakeholders on more board and organisational diversity, is it time for us to #ChooseToChallenge and do things differently? What is holding progress back, what is the role of boards in moving the dial, and what can we do differently?
IDN members participated in a webinar in March 2021 where they shared their perspectives on board diversity. Liselotte Engstam IDP-C and IDN Board Member, facilitated the session.
Setting the Scene
Karen Loon IDP-C and IDN Board Member, gave an overview and shared her perspectives on increasing board diversity, highlighting that it is a wicked problem that is not easily resolved.
Although discussion on increasing the diversity of boards started with a focus on gender, it has now broadened beyond demographics to diversity of thought and experience, and its impact on innovation. Further, stakeholders’ expectations, particularly investors, due to the increased focus on sustainability.
As a result, various governments, regulators and advocacy groups have released regulations and guidelines to support increasing the pipeline of available diverse candidates for boards. These include implementing quotas or targets and encouraging boards to have more targeted and independent board renewal processes.
Whilst the number of women on boards globally has increased to 16.9% in 2018, up 1.9% from 2016, there is still some way to go, and progress has been slow and inconsistent.
Understanding the different viewpoints on why having board diversity is important requires one to understand various organisational and personal motivators. Some focus on the business case for diversity, whereas others concentrate on the social case (the “right thing to do”).
Much of the academic and business research to date has centred on the business case for greater board diversity. In particular, it has sought to demonstrate a correlation between board diversity (principally gender) and greater financial performance. This includes a broad range of areas, including financial position/performance, public disclosure, socially responsible behaviours, firm decisions, philanthropy, reputation, and innovation.. In 2020, a study in Australia by Curtin University took this a step further and found a causal link between greater numbers of women on boards and in leadership and better financial performance.
Other recent research has explored areas including:
- Board dynamics – Increased board diversity only results in better decision making if the board operates as a cohesive group and free from conflicts, and there are policies in place to allow the diverse members to have an impact. Subgroup faultlines can reduce board effectiveness. The interplay between women and specific organisational settings can affect board behaviour.
- Investor reaction – A gender-diverse board is interpreted as revealing a preference for diversity and a weaker commitment to shareholder value.
- Agency vs. communion – Higher-power individuals, higher class individuals, men and whites express greater agency, whereas lower-power individuals, lower-class individuals, women, and minorities express greater communion.
One question Karen raised is if the business case for greater board diversity is clear: Why don’t we see boards increase their diversity more quickly? Could there be other “elephants in the room” at play holding change back? And could it be time to look at things differently, recognising that board work is both logical/technical and illogical/emotional?
On board dynamics, she noted that a board is a team, but it is only as good as the collective of the board and what they bring to it, both conscious and unconscious. Further, board work is emotional, as discussed in IDN’s webinar, Fit for Generations: How to Create & Lead a Family Business Board.
Another angle is: Should we view increasing board diversity as part of a broader organisation or cultural change initiative, as Professor Michael Jarrett suggested in his March 2021 INSEAD Knowledge article?
And if this is the case: Should boards themselves be more reflective to understand why there may be ambivalence for change and assess what needs to be done. Is there a greater opportunity to share views on boardroom dynamics and the unsaid in a safe space?
IDN members had the opportunity to share their views on what board members can do to increase board diversity. Key highlights included:
- Importance of the role of the chair – The role of the chair in the boardroom at the start to ensure all voices are heard is paramount as he/she sets the tone for acceptance of the importance of board diversity and the boardroom culture. Having a culture of being open to listening to different perspectives and having processes that draw these out includes inviting everyone’s opinion, respecting different viewpoints, ensuring no one dominates the discussion, and being very open-minded and respectful.
- Role of the nominating committee – The role of the nominating committee to support board renewal is essential. Nominating committees have a responsibility to ensure that the list of candidates they start with is representative.
- Valuing diversity of perspectives, thought and contributions – Diversity should not be viewed as a box ticking exercise. True diversity is diversity of perspectives, thought and contributions in the boardroom, in addition to demographic diversity. Having more international board directors can support this. It is equally important for boards to ensure that there is diversity in their organisations, not just the boardroom and to ensure that it is pushed down.
- How can we move the dial? – Some participants were supportive of quotas and having the “power of three” as they felt it improved the quality of boardroom discussions. Whilst there has been a lot of awareness-building on the importance of board diversity, more can be done.
To find out more, read our IDN member views:
- Women Chairs: The Time Is Now, A Job For the Girls, The Gender Bonus Beyond “The Land That Time Forgot”, and Chairman of the Future: Diversity at the Top – By Helen Pitcher OBE IDP-C, IDN President
- A Step Change in Diversity Perspective: The shifting sands of diversity by Helen Pitcher OBE and Ludo Van der Heyden, Emeritus Professor of Technology and Operations Management, and the INSEAD Chaired Professor of Corporate Governance
- Brave boards in a new world: What can gender diversity contribute – By Marina Niforos IDP-C, IDN France Ambassador
 For example, refer to the overviews of recent research by Kagzi and Guha (2018) at https://www.emerald.com/insight/content/doi/10.1108/JSMA-01-2017-0002/full/html, and Salma and Qian (2021) at https://www.journalofbusiness.us/index.php/site/article/view/182.
INSEAD Directors Network (“IDN”) – An INSEAD Global Club of International Board Directors
Our Mission is to foster excellent Corporate Governance through networking, communication and self-improvement. IDN has 1,500 members from 80 countries, all Alumni from different INSEAD graduations as MBA, EMBA, GEMBA, and IDP-C. We meet in live IDN webinars and meet-ups arranged by our IDN Ambassadors based in 25 countries. Our IDN website holds valuable corporate governance knowledge in our IDN blog, and we share insights also to our LinkedIn and Twitter followers. We highlight our member through quarterly sharing of their new board appointments, and once a year we give out IDN Awards to prominent board accomplishments. We provide a peer-to-peer mentoring and board vacancy service and we come together two times per year at the INSEAD Directors Forum arranged by ICGC. We also engage with ICGC on joint research.
INSEAD Corporate Governance Centre (“ICGC”)
Established in 2010, the INSEAD Corporate Governance Centre (ICGC) has been actively engaged in making a distinctive contribution to the knowledge and practice of corporate governance. The ICGC harnesses faculty expertise across multiple disciplines to teach and research on the challenges of boards of directors in an international context and to foster a global dialogue on governance issues with the ultimate goal to develop boards for high-performance governance. Visit ICGC website: https://www.insead.edu/centres/corporate-governance