Brave boards in a new world: What can gender diversity contribute

OECD-CFA Institute Webinar in collaboration with INSEAD IWIB Club

By Marina Niforos, IDN Ambassador France and Non-Executive Director

On 29 June 2020, the CFA Institute and OECD co-organized a discussion on the challenges that boards are facing in the aftermath of this unprecedented crisis we are going through and on the lessons that can be learned for ‘building back better”. IDN Ambassador France, Marina Niforos participated in the discussion that aimed to address the role corporate governance can play in navigating the “new normal” and how board diversity can contribute to the reconstruction phase.

Josina Kamerling (Head of Regulatory Outreach, CFA Institute) opened the panel, stressing the following: Despite codes metrics and consistent efforts to increase gender diversity at Boards over many decades, change remains slow and does not always trickle down to action. Will this crisis present an opportunity for Women in Leadership? Uncertainty is the new normal: A Threat or an Opportunity?

While the participants came from different board backgrounds (regional, supervisory board, corporates, funds, insurance, infrastructure, sovereign funds) there seemed to be consensus on the nature of the crisis and the impact:

  • The nature of the COVID19 crisis is unprecedented, of a much larger magnitude that the 2008 financial crisis. People are questioning the fundamentals on both a professional and personal basis, as they are confronted with a threat on their own wellbeing and of the things they value most. A ‘grey swan’ or a ‘black swan’, the recent crisis has ‘put in question many past orthodoxies and shown boards that we cannot solve unpredictable challenges without increased diversity of thinking at board level.  As Georges Desvaux (Axa, Chief Strategy Officer) noted:

”Boards will require a new skillset, that goes beyond from the typical profile of a another CEO that was the preferred candidate of choice for board seats”.

  • In practice, according to Marina Niforos (NED, HCAP), corporate governance is facing opposing forces: on the one side, boards are thrown by circumstance into a crisis management mode, firefighting role that pushes the perception that ESG and general sustainability considerations are a luxury for “when times get better”. On the other hand, there is increasing pressures from stakeholders (customers, employees, investors, regulators and citizens at larger) that are stressing the need to address these issues as strategic in establishing trust and ensuring that economic recovery is perceived as possible and equitable by all. Boards and companies who are unprepared to provide credible answers and scenarios will be subjected to public scrutiny and reputational risk. McKinsey’s report Diversity Still Matters makes the compelling business case that companies with more gender diversity and ethnic diversity outperform their peers, contributing to the resilience and long-term performance of the organization.
  • Franca Ruhwedel (Professor and NED) stressed that, despite the focus on short-term risks, a positive development has been the change of tone and new culture of ‘discussion’ in Supervisory Boards in two tier systems, allowing SBs to move beyond a compliance, tick the box modus operandi to a more hands on, strategic approach and has fostered stronger ties between supervisory and management boards.
  • This crisis can be an opportunity to advance in the diversity and sustainability of boards and the companies they serve. Whether NEDs or executives, Boards need to seize the opportunity as to address these issues as a strategic medium-and long-term objective that will define their competitive advantage. The complexity of the new challenges, ESR ones at the front, and the agility required to adapt now call for new profiles, more connected to the market reality, the ones that will be able to figure out resilient scenarios and better solutions for long term sustainability.
  • This need for a diverse skills set on the Board, a greater stakeholder management experience and empathetic leadership presents an opportunity to go beyond the traditional profiles and closed network where board members were co-opted and allow more professional women to enter the pipeline. According to Marina Niforos, this will require professionalization of board searches and a move from credentials of that “make the board look good to criteria that make the board do good”. “Strategical broader vision expected from board members requires not only technical or industry specifics competencies but also a more global mindset and open-minded collaborative attitude that let opportunities for more diverse talents” said Nicole Gesret (CEO, SITG).

The Link between Diversity and Sustainability: How to measure Impact?

“Boards are accountable to contribute to truly to their shareholders but also to the overall ecosystem of stakeholders and to the next generation: how can we use experience to measure board diversity on corporate sustainability?” (Josina Kamerling)

There is a lot of discussion since the COVID19 breakout on the need to put sustainability squarely on the agenda of companies. In the past, many companies made bold statements about the importance of sustainability but few addressed it as part of business strategy, relegating it to the realm of CSR policy. The crisis has made people realize the fragility of our ecosystems and the vulnerability this implies for us and our societies. There is increasing grass roots momentum as citizens are very concerned about the future and potential threats and are pressuring their own political representatives to take sustainability considerations and climate more seriously and customers are challenging companies on the origin and quality of the products they buy. In turn, governments are mobilizing to ensure that climate becomes a policy priority with specific conditionality for companies, as for example in the case of granting EU state aid for the post-COVID recovery, eg. Air France.

Additionally, mainstream investment funds and asset managers are clamoring to claim the space of ‘green investments’, to discredit perceptions of ‘green washing’, creating new funds and making capital commitments for green investments (Goldman Sachs, JPMorgan) Yet, in order to take advantage of this wave of good will and translate pressure from stakeholders into lasting results, certain critical success factors need to be at play:

  1. Metrics are key: “what get’s measured, get’s done”.
  2. Convergence around a common methodology that allows for progress checking and benchmarking is important to provide transparency across industries and sectors. Initiatives such as the Taxonomy for Sustainable Finance at EU level is intended as an effort to provide a market standard. However, if tools are too complex to apply, SMEs who do not have same resources as large companies may find themselves at a competitive disadvantage.
  3. At the same time, pressure for compliance to these demanding standards will push boards to search for the requisite skillset, opening up more board seats for women and men.
  4. Training and corporate culture change is a continuous process and needs to have investment by the board: The skillset regarding Diversity and inclusion culture, same as ethics, is something that should form part of the continuing education of Directors, so that their more openness of spirit at board discussions, tolerance for dissension and move beyond just the simple ticking the box.
  5. Accountability for results: Boards need to hold management accountable for diversity and ESG objectives. In an environment of post crisis pressure management will be risk averse and unwilling to take on less conventional profiles on their boards. The board a s collective should ensure that management stays on track and does not lose its focus. The example of a ‘living cv’ that is a public registry tracing the past performance of Board Directors was held as a practical example of an accountability mechanism accessible to all.
  6. Board self-assessments: Beyond management, boards should exercise their own self evaluation at board and/or committee levels, with external evaluators when possible, to encourage introspection and have specific action plans when weaknesses are identified. Those can be publicly disclosed on company websites for full transparency.
  7. Diversity is not just a Board issue: diversity is not just a question of board composition but of the company talent management strategy as a whole, a strategic objective squarely under the Board’s oversight. It is important to ensure that a culture of inclusion is reflected is senior management and the different management levels of the company to ensure a robust pipeline.

Key Recommendations for policymakers and companies

  • Boards “Need to walk the talk”, to show demonstrable and measurable results not just paper. Demonstrate by example, as we have seen Danone in changing their legal status to a ‘purpose-driven company’. This type of public commitment then becomes a process for delivering results.
  • Policymakers should actively engage with private companies to encourage positive outcomes through the right incentives. This exercise should not be about format, but about a continuous dialogue and will require flexibility and persistence
  • Companies should not wait for the regulator to impose quotas or similar measures but should actively have develop their own self-governance initiatives to encourage diversity. • Setting quotas might work for some countries and cultures while others will be more resistant to top down approach.
  • Go beyond the compliance approach. You can comply with the law and still not do a good job. The important thing is to ensure transparency, report on what you are doing on diversity, have it on the board agenda, report on how do you do the selection and then let the market do its work.
  • Regulators should ensure, where they can, that boards have sufficiently trained and certified board directors and ask that it becomes the standard, thereby creating a market for these skills.

OECD Representative, Mathilde Mesnard (Deputy Director, Financial and Enterprise Affairs) closed the conference stressing that the crisis is perhaps creating a paradox. Women at the bottom of the pyramid are disproportionately impacted and data indicates that violence against women is on the rise since the outbreak, but on the other hand, we might have an opportunity to make a a difference for women in leadership and women on boards, if we manage to maintain momentum and put in practice some of the lessons learned.

How a post-Covid 19 workplace scenario looks like

Geographic borders will be removed from talent acquisition and put us all in global competition in a possible workplace scenario post-COVID 19.

By Kolja A. Rafferty, MBA, IDP-C and IDN Switzerland Ambassador

COVID-19 has catapulted us to collaboration 2.0.

Remote working has become the new reality. Whereas scholars are analyzing the effects on productivity, social dynamics, emotional side effects, corporations are already engaging in their own, economic assessments. The Corona crisis has forced us, to let go of our legacy understanding of office culture, as the maturity of technology supports decentralized and remote collaboration. Once we will return to a new normal, parts of this new form of collaboration will stay and transform our way to work in the future. Yet, companies will not “forget” to call back their employees to office, but economic incentives will foster further decentralization.

Three drivers are identified.

1. Talent will be competing in a global market

Remote work eliminates geographic proximity as consideration for recruitment processes. Suddenly, a candidate from a rural community is just as eligible for a position, as the applicant, living two blocks from the corporate HQ. In parallel, this is leading to a democratization of opportunities. Privileged access to job openings, based on geographic proximity is a pattern of the past. Talent, living in remote communities or abroad will be applying for jobs, inaccessible for them, just a few months ago. Globally decentralized teams, as we witness e.g. in the software industry, will be normal, soon also in other industries. This increases the pool of potential candidates for new hirings, hence leverages the bargaining power of the employer.

For employers no reason remains, to pay the same upmarket salary to all employees, if geographies, hence the cost of living, vary widely. The national minimum wages are quickly obsolete if recruitment is seeking for the equilibrium between supply and demand in a global market. Purchasing Power Parity (PPP) adjustments as part of a firm’s compensation scheme are to be expected. Already Facebook has been seen, to have introduced cuts on salaries of remote workers, who live in rural areas.

The combination of these elements holds a very important message for the workforce: In a post-Corona work environment, near to all employees are acting and competing in a global market. The skills and cost of labor are not any longer subject to only local conditions. Protection by national labor laws will be weakened and diminished.

2. Talent management will be like Just-in-Time Supply-Chain-Management

Extending the scope for recruiting to the global market place for talent offers firms the opportunity to onboard specific skills much more flexible than when being restricted to a local talent pool only. The idea of “just-in-time” delivery gives the right direction.

Whereas the flexible onboarding of highly skilled experts for specific tasks, becomes available also for SME firms, the flexible “rightsizing” of the workforce delivers additional benefits. Analyzing labor laws, we find significant differences between different legislations. Whereas the protection of employees is high in one country, it might be inexistent under another legislation. As protection (= inflexibility) comes at a cost for the employer, engaging “free agents“, that are operating under a more flexible legislation makes economic sense.

Taking advantage of arbitrage effects between different markets will allow employers to be more cost-efficient. Freelance- and payment platforms like e.g. Upwork.com, provide already today the technical infrastructure to engage freelancers from a global talent pool. Operating through these platforms helps firms to void risk and complexity of international labor law.

Hiring foreign talent has just become as accessible as the local workforce. Any form of employer commitment and administrative hassle to hire or fire staff is been excluded from the process. On the good side, this means to further democratize job opportunities, as also, visa and work permit constraints, and the hurdle of commuting (or relocating) is removed from the decision process for the employee. Also, individual time management, work-life balance, etc. is fully at the discretion of the employee. “Testing” a job, bridging between two assignments, creating extra income, etc. becomes feasible, regardless of distance and location.

Yet, the degree of competition in the workforce is increased again. In the long run, this puts another element to the test. Today costs for social security account in western economies for a significant portion of labor costs. Under the rule of global competition, it can be expected, cost positions being gradually minimalized. This can lead to increasing rates of unemployment in “social security”-strong economies and potentially compromise the integrity of the social contract in these economies. This suggests also lawmakers stepping in at a certain point, and creating a regulatory framework for outsourcing and decentralizing the workforce of the firms.

3. Office space will become obsolete

With an increasing decentralization of the workforce, demand for office space will decrease. Flexible workplace policies, moving to shared workplaces, etc. may be practical applications. Real estate companies will potentially look in a less rosy future or will be required to adjust their offerings to a more flexible approach, less scoping long term economic rents but more moving towards scalable office concepts, where fully furnished, high end facilities, provide IT infrastructure and services, to address the value-creating part of employee presence. Strong connectivity, conference, and workshop resources, high-end technologies for e.g. video conferencing, may come more in the focus, than the beloved cubicles in the shared office spaces.

Opportunities for lower labor costs will be a key for competitive advantage

In a post-COVID-19 work environment, areas to decrease cost of labor include:

  • Reducing costs per labor unit, by including PPP adjustments and arbitrage effects into HR hiring strategies.
  • Removing idle resources through the flexibilization (JIT) of knowledge and human resources, adjusted to the current demand for projects and the organization.
  • Reconsideration of required facilities, and potentially downsizing of space and repositioning the remaining facilities to areas of collaboration, rather than to “(administrative) production facilities”.

These trends are likely to reduce the required permanent number of employees of a firm to a bare minimum of individuals with a high degree of relevant competencies, corporate memory, and decision-making authority, within the specific context of the company.

The flexibilization effect of this trend will be experienced by employees, so far rather untouched by efficiency and outsourcing initiatives. With the evolving IT systems, supporting remote collaboration, processes, and data can be shared, that was out of the picture of decentralization and outsourcing before.

Inefficiencies for productivity, associated with remote working models, are considered to be overcompensated by the economic benefits. As in many other trends, it is fair to understand these as temporary. Over time, organisations and individuals will learn, how to foster efficiency despite distance.

HR will transform to talent procurement experts, key for the adaptability of the organization

Also, a department with, so far, a Snow White-like existence may find a new purpose. Human Resources is notorious for having a bad reputation and only low respect among line managers. Under the parameters of the new reality, the Human Resources department can become a broker of talents, vital to the performance capabilities of an organization. This elevates the HR department from an administrative pain for everyone to a strategic asset for the CEO.

The change we are looking at is not only operational. Whereas many start-up companies are already operating in the described mode, companies in legacy industries are far from being ready for this kind of transformation. This creates vulnerability and also economic inefficiencies, that might be exploited by more flexible and capable market participants.

Make or break – the role of the non-executive-board

Make- or breakpoint, will be in the culture of a firm, hence, also under the influence (and responsibility) of the non-executive board:

  • Is change embraced or is the organization reluctant to adapt to new market conditions?
  • Is HR seen as an administrative department, or a critical instance, to help to create the future?
  • Is the firm driven by a culture of accountability, as a basis for strong project management skills, critical for decentralized collaboration?
  • Is a strong vision in place, motivating and engaging employees, and creating trust between employees and executives, sustainable enough, to bridge the distance?

Take away – The post-Corona workplace reality will transform the way we work and offer chances for SME firms to globalize.

The new workplace reality is based on technology and is taking advantage of decentralization.

Digital champions have better chances to adapt and survive.

Whereas this holds the potential for cost efficiency, diversification of the team, and fast iterations of the evolution of the organization, a strong culture is key to be successful.

For an infographic of this article, read here

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Kolja A. Rafferty, MBA, IDP-C is an author, consultant and executive.  Kolja focuses on situations of rapid change, turmoil and economic distress. He is operating for Private Equity investors and Banks in Europe and the Middle East, helping to resolve distress situations in companies of different sizes and sectors.

Talent on the Board Agenda, before and during the crisis

Webinar with Helen Pitcher OBE, IDP-C and Mary Sue Rogers IDP-C on 18 May 2020

Talent has never been a more important topic for the Board.  The focus on talent at the Board level is evolving, and many Boards demonstrate best practice while others still see it as more of a reporting and compliance activity.

At its heart, it cuts to the sustainability of the business.  Gone are the days when the Board examined a Nine Box matrix once a year to review the succession pipeline and rarely did these processes yield talent fit for the future as they were looking at replacing “like for like” in many instances not looking at the changing landscape of skills requirements.  Often people were placed in these boxes because they were good “Number 2’s” and made their bosses life easy!

The Financial Reporting Council – whilst a UK Code – covers many international businesses and is usually regarded as best practice governance throughout the world now requires Boards to know the talent in their organisation and the skills required for the Board to be fit for purpose.

COVID-19 has thrown up its own challenges with talent both for the future and for the immediate if sadly a key member of the team falls victim to the virus has led to emergency measures to identify who can step into these roles.  It is also highlighting a need for different skills and the leadership capability to steer the organisation through a remote and distributed leadership lens.

The webinar held on 18 May 2020, facilitated by Liselotte Engstam and Hagen Schweinitz, IDN Board members, and delivered by Helen Pitcher OBE, IDN President and Mary Sue Rogers explored the issue of Talent, the Board’s focus and the myriad of challenge it creates.  Practical guidance was given as to how to approach this and excellent questions were posed by the 80 plus people signed up for this lively and interactive session.

Topics discussed included:

  • The type of company and size of the Board will drive how the talent agenda is addressed. For those of us that are passionate about this topic, we will have achieved success when the HR Committee, Nominations Committee, Remuneration committee, or whatever it might be called,  has a level of standardisation and focus equal to the Audit and Risk Committee.
  • Every company’s governance process should have oversight into key talent topics beyond just executive remuneration and CEO recruitment.
  • Having an annual Board cadence around topics such as strategic talent needs, succession, employee development, engagement, culture, and specific workforce challenges such as recruitment and retention is best practice.
  • Boards should also have a way to educate themselves on the key talent trends – topics such as “gig workers”, robotics and AI, career development, and performance management.

By Helen Pitcher OBE, IDP-C, IDN President, Non-Executive Director, Chair Board Committees, and Mary Sue Rogers, Non-Executive Board Director, Committee Chair, IDP-C.