The Diligent team Image
The Diligent team
GRC trends and insights

The importance of diversity for good governance

April 9, 2018
0 min read
Diverse board in a meeting

As much as diversity is a hot topic in the world of corporate governance, and as much as board directors are in agreement about the benefits of a diverse board, it's ironic that diversity is catching on at a snail's pace. The lag in creating diverse boards causes some to wonder how such a prominent issue continues to be ignored. The answer to this issue lies in putting together the pieces of what the board's duties and responsibilities are and what they need in the boardroom to make that happen.

Diversity Impacts the Role and Environment of the Board

Boards of directors make many important decisions. Their primary focus is on identifying and evaluating risks and opportunities as they relate to the organization's mission. In addition, the board provides strong oversight over the CEO, who is the leader of operations. The board's guidance and decisions form a roadmap for managers to follow in their role of implementation.

Successful board work requires two important components ' experienced and collaborative board directors who are skilled in communication and an environment where board directors trust one another enough to bring forth opposing opinions about challenging issues.

Diversity of Perspectives vs. Diversity of People

Discussions over diversity often focus on women, independence and ethnicity. Choosing board directors solely because someone fits into one of those categories, or because the appointment appeases regulatory bodies, isn't enough on its face.

Productive board discussions require a breadth of perspective that is also diverse. Boards that choose directors based on filling a category to meet the desired composition without considering whether the director can fill the need for varied perspectives lose a prime opportunity for robust discussions and well-rounded decision-making. Such a dynamic is increasingly important because of the complex issues today's boards are facing.

The essence of a quality board is not only appointing board directors who appear diverse, but selecting board directors who are capable of thinking and communicating diverse thoughts and opinions. Beyond seeking people who truly lend diversity to board discussions, board directors should be chosen because they positively impact the chemistry and dynamics of the current board.

Diversity of People and Perspectives Enhances Governance

Most board directors are well aware that the changes they bring to the organization are often lasting, whether the changes are positive or negative. On the whole, board directors believe that diversity nets better decision-making because of the weight of the decisions they regularly make.

If all board directors were always on the same page, there would be no need for a board at all. Board directors are keenly aware that they perform at their very best when cultural diversity, diversity of thought and diversity of perspectives are rampant around the board table. Changes in the economy and with technology make it increasingly difficult to navigate the web of risks their corporations face. The experiences of a diverse board help bring discussions to the boardroom to help board members identify and deal with negative forces in the corporate world.

A boardroom filled with multiple perspectives lets creativity rule the day and doesn't make room for groupthink. Great ideas emerge when disrupting the status quo. This environment fosters a dynamic that generates comprehensive oversight.

Diversity Reflects Shareholders and Stakeholders

While board directors are toiling away assessing risk and making plans, many others are on the outside looking in and making their own assessments. Investors, customers, the media, regulators and others are watching boards closely to see how they manage the corporation's challenges. Stakeholders have a higher comfort level with decision-making when the board represents the diversity that exists within their workplaces and communities.

All companies should be sensitive to serving those who live and work in the real world in some capacity. Having diversity on the board sends a clear message to shareholders, customers and the public that the corporation can be knowledgeable and sensitive to a broad spectrum of people.

Diversity Benefits the Corporation and Its Benefactors

Besides the fact that diversity projects a positive impression of a well-run board, a diverse board also gives corporations a competitive advantage. Diversity has become necessary because of the rapid rate of global economic change whereby board directors need to be able to use all available resources at their disposal to enable them to think on their feet.

C-suites are filling up with huge, untapped pools of talent that include the skills, industry knowledge and expertise in operations coming from the various perspectives of women, experts and ethnicities. Diverse backgrounds set the stage for tackling the same ideas from many different angles. As boards pull from this pool of talent, corporations are becoming more adaptable than ever before.

Diversity at the top almost certainly trickles down and runs throughout the rest of the corporation. All of these reasons support the belief that diverse boards improve corporations' reputation and branding.

Reasons Boards Aren't Moving Toward Diversity Quickly Enough

The reasons for supporting diversity vastly outweigh the reasons for not moving toward diversity. Still, the move toward diverse boards continues to be a slow one for a few illogical reasons. To a greater or a lesser degree, we all like to stay within our comfort zones. Boards are no exception, so they tend to resist change rather than disrupt the status quo. By nature, we all prefer being around like-minded people.

It's more difficult for a board chair to facilitate a meeting where there's a necessity to draw out diverse perspectives and to manage opposing opinions and conflict. Meetings are certain to take longer, making the work of the board a little more work.

Boards that can move past these challenges will be open to creating diversity on the board sooner rather than later.

Final Perspectives on Diversity and Good Governance

Moving forward, boards would be remiss not to consider the diversity of perspectives when considering the diversity of people for board candidates. The best candidates will be people who have a good combination of experiential, demographic and personal attributes. A good first step is for board nominating committees to cast a wide net when pursuing potential candidates.

Corporations that move too slowly to get on the diversity bandwagon will most certainly find increasing pressure from regulatory bodies. Regulatory bodies have moved from making recommendations to issuing quotas, along with a sidebar asking them to comply or explain. If too few boards pursue diversity, we're likely to see some legislative remedies in the near future.


Your Data Matters

At our core, transparency is key. We prioritize your privacy by providing clear information about your rights and facilitating their exercise. You're in control, with the option to manage your preferences and the extent of information shared with us and our partners.

© 2024 Diligent Corporation. All rights reserved.