The current complex set of challenges that companies face requires a diverse team of directors. But diversity is certainly not yet optimal in many companies, the recent Diligent Modern Leadership Report shows. This is a missed opportunity. More insight into diversity generates opportunities for companies globally, definitely also in the Netherlands, especially with the AGM season approaching.
So much is well-known: having a diverse board of directors is a recipe for better decision-making. Owing to their different backgrounds, diverse leadership teams are a better reflection of the diversity of customers and other stakeholders of the organization. Diverse teams see opportunities in the market earlier and respond better to them. Diligent's recently published Diligent Modern Leadership Report maps the diversity in companies worldwide. Diligent is a supplier of boardroom information systems and a modern governance company.
Additional Diligent data about boardrooms in the Netherlands forms the basis of this article. Its conclusion is the following: apart from gender balance, which is still an issue, many Dutch companies miss other diversity opportunities with regard to the boardroom: diversity in experience, age category, cultural background and education. These too, most modern research concludes, are important types of board diversity for companies to analyse.
Closing the diversity gap
Most – if not all – organizations these days have a picture of diversity within their boards. Diligent helps them with smart data and analyses on this topic, benchmarking it to their wider industry. The Diligent Modern Leadership Report shows that the gender gap is still present in many companies. In the Netherlands, women occupy 26% of boardroom positions. For comparison: in France (42%), Italy (41%) and Belgium (37%) this share is much higher.
It is very interesting to consider the current efforts to close the gap – which are insufficient. Our data shows that the gender gap is changing because of new appointments of female executives, but only very slowly. In the first five months of this year, only 36% of executive appointments worldwide were female, in line with the global average for the whole of 2021. Our data suggests that among Dutch companies in our sample space of 109 companies, most of which are listed, female directors represent 46% of director appointments within the same period. Narrowing the data down to the AEX index for Dutch blue-chip companies, we find that the percentage rises to 67%.
The good news is…
There is also good news. It is increasingly recognized that in the process of putting together a diverse board, a deep dive into diversity data is valuable. A lot of research has been done on the subject. This shows that boards with directors with different backgrounds work differently. They look at an issue in totally different ways, thus preventing tunnel vision in the board. More critical questions are asked, which deepens and broadens the discussion. This in turn ensures a more complete understanding of the problems and challenges facing the organization. In an ideal scenario, the board of directors, HR, the supervisory board and other supervisory authorities are working together on the subject.
In many companies, the gender balance on the board is on the agenda of the supervisory authority. In many listed companies, it is a fixed part of the annual report. Recent legislation forces large companies to improve gender diversity by bringing more women on their boards. Broad insight into diversity is increasingly more of a need-to-know than a nice-to-know. However, other characteristics that contribute to diversity are less well captured, and this goes both for individual companies and for industries.
A good example is data about the education and experience of directors and data about the skills of individual directors. This data is important when capabilities needed for the company's long-term strategy are analysed. For example, does the organization lack crucial knowledge on the board to attract a younger tech-savvy customer group? Is there sufficient strategic insight into sustainability to lead the organization through the energy transition?
The rewards of analysing diversity
Shareholders and other stakeholders are closely monitoring these developments. Understanding diversity helps to answer their questions about, first of all, the diversity policy of companies and thus also about long-term value creation. Diversity is widely expected to be one of the big themes of the upcoming season of General Meetings of Shareholders (AGM). Shareholders and other stakeholders do not hesitate to hold insufficiently diverse boards to account.
Having the right data also unlocks interesting trends for the recruitment of executive talent. Analysis by Diligent of the skills and professional backgrounds of newly appointed directors shows how new talent is being added to boardrooms worldwide. New directors are increasingly bringing in professional experience in areas such as technology, marketing, sales, HR, ESG and legal expertise. Diligent found that with companies globally, more than 35% of the newly appointed directors brought in specific domain expertise, whilst 46% of newly appointed directors have no previous comparable executive experience. Nevertheless, the majority of companies still choose mainly candidates with director experience, since more than half (54%) of the newly appointed directors are former CEOs, CFOs or COOs.
In the Netherlands, the data suggests that 98% of all female directors have executive backgrounds, compared to 97% of their male counterparts. Women are three times more likely to have sustainability backgrounds relative to male directors.
|Level||% of female directors out of all female directors on board||% of male directors out of all male directors on board|
Source: Diligent Modern Leadership Report 2022
Outside of their networks
Thanks to boardroom data, executive boards and supervisors can make well-founded decisions about the composition of the leadership of their organization and take timely action based on insight into the gaps. Having good data challenges selection committees to search for the right candidate outside of their traditional networks.
That can put people with unique experience and talent on the radar. In this way, the composition of the board fits in well with what the organization needs for long-term value creation. This is because an insight into the points for improvement is not a luxury, given the progressive legislation in the field of diversity. It helps to test the composition of the board against international corporate governance and sustainability regulations. And it gives an insight into how well equipped boards are to face future challenges.
Learn more about Diligent’s Board Effectiveness Solution and how it supports organizations across the globe to build and maintain an effective leadership team. Diligent’s centralised, easy-to-use platform helps you analyse performance, evaluate gaps in expertise and identify the right people to successfully execute your organization’s strategic objectives.