Diversity in the Boardroom

In the boardroom, diversity can enhance decision-making and drive more wide-ranging and probing discussions. It can also help remove the blind spots that can keep important matters out of sight.

“Research shows time and time again that diversity improves outcomes in a number of ways, including financial performance, the quality of decision making, reputation and the ability to innovate,” says Alicia Curtis, co-author of Difference Makers: A Leader’s Guide to Championing Diversity on Boards. “A more diverse board may also have a deeper understanding of the organisation’s stakeholders. As the not-for-profit (NFP) sector faces more complex challenges a range of perspectives in the boardroom is increasingly important.”

Gender has been the focus of boardroom diversity since the topic was first debated in the 1960s. However, if we think of diversity as the characteristics that make each person unique it’s clear that gender is just one aspect of a complex dynamic.

“Even beyond gender, many people describe diversity in terms of visible differences such as age and race, but it also includes our backgrounds, behaviours, personality, life experiences and beliefs,” says Curtis. “Diversity is a mixture of the visible and invisible differences that shape our world view and our ideas and perspective as well as our approach to life and work.”

So a board that appears to be diverse might not be diverse in the ways that count.

“There may be a mix of men and women of different ages and ethnicities but, if they all come from affluent backgrounds, went to private schools and studied law or accounting at the same universities, they’re all going to be looking at the world through a very similar lens,” says Paul Smith, co-founder of the Future Directors Institute and chair of the Jane Goodall Institute Australia.

In the NFP sector, some directors are chosen from a particularly small pool.

“I was asked to consider joining the board of one of the Cancer Councils for my skill set and also because I have been treated for cancer,” says Michael Adams, Professor of Corporate Law and Governance at Western Sydney University’s School of Law and a director of The Freedom Hub and the John Mac Foundation . “If I had been able to take up the post, my experience would have added another level to the more traditional contribution I was able to make. But another organisation I worked with in a different role insisted that all of its directors had a family member with a particular disability. While you want people on the board to be passionate advocates for your cause, this could be very limiting in terms of the broader elements of diversity.”

Adams believes that, to govern effectively, directors need to take a studied approach to the constitution of the board and to keep an open mind in terms of available talent.

“While a mix of backgrounds and perspectives may be beneficial on a board, diversity should not be pursued at all costs,” he says. “Instead, boards are best constituted around a common purpose, and on the basis of the ability of the board members to work together.”

The Dangers of Tokenism

Research suggests that there is little to be gained from token representation.

“If you’re the only director on the board who isn’t white and, let’s just say, middle-aged, there’s a danger your voice won’t be heard,” says Smith. “You might also be treated as a representative of an entire demographic rather than valued for the skills and experience you bring to the boardroom, as in “You’re a woman – would other women like this approach to fundraising?” or “You’re young – what do millennials think of foreign aid?”

Smith often works with individuals who want to affect positive change, work hard to gain a seat on a board and are then disappointed by their lack of influence.

“If would-be directors suspect they’re being recruited to make up a quota or as a token of some kind we recommend they use this as a way into the boardroom,” he says. “With our help they can then upskill themselves in terms of their ability to exert influence and learn other techniques that will help them to be heard. Some of these techniques can also improve the overall emotional intelligence within the room.”

Negotiating the Barriers

An aware board will accept there are barriers to overcome.

“Over the millennia our behaviour has been influenced by the tribal instinct that helped our stone-age ancestors to protect themselves from outside threats,” says Smith. “We still tend to be attracted to sameness because our subconscious tells us it’s safe. This instinct is weakening as young people grow up in much more diverse environments, both online and offline, and most of us will reject the concept with our rational minds. But, as humans, we inevitably have unconscious biases.”

Some boards remain stuck in the here and now.

“Unfortunately, the attitude that “we can’t do that because it’s not how we’ve done it before” is still quite common, particularly in the NFP sector,” says Smith.

Cost can also be seen as a limiting factor.

“When you’re seeking new directors and you’re short of money it’s tempting just to tap someone you know on the shoulder,” says Smith. “But spending money to find the right director is a sound investment and, now you can search online, finding candidates outside your network doesn’t have to cost a fortune. Boards should think about how much financial value they gain from a volunteer director – effectively tens of thousands of dollars in contra. There’s also the matter of good governance, which means doing what’s best for the organisation. That includes getting the right people for the board.”

Directors must also be prepared to make way for fresh talent.

“I believe there should be a policy to ensure regular board turnover,” says Adams. “My personal view is that no director should serve more than two three-year terms unless there are exceptional circumstances.”

A Formal Commitment

There is some evidence of a positive shift in terms of the number of women on commercial boards. According to the latest Gender Diversity Progress Report from the Australian Institute of Company Directors, the percentage of women on the boards of ASX 200 listed companies has risen to 25 per cent from 8.3 per cent in 2009.

There are still some who believe that legislation would expedite progress, though Adams believes that mandating a particular board composition by imposing a quota of specific types of board members would be controversial in Australia, not least because of critical differences between public companies, private companies, government-controlled entities and NFP associations.

“Nevertheless, pressure from a variety of stakeholders may increase the urgency of changes to board composition in institutions of all kinds,” he says.

In the eBook Driving Diversity on Not-For-Profit Boards authors Riley Upston, Ian Edwards, Seanna Dempsey and Alexandra Wilson propose that boards formalise their own commitment by developing an official Board Diversity Policy. This can consolidate any existing strategies and help to identify new ones. It can also provide clear structures and objectives to ensure that board diversity is not only supported by the organisation’s current leadership but will continue to be supported in the future.

The authors also suggest that there is also great value in the process of crafting plans, strategies and policies as this can help to shape the board’s thinking on the issue.

“It really is time for boards to put all of the evidence into action,” says Curtis. “Those who are leading the way by broadening diversity on their boards are often the biggest advocates for diversity because they have a direct experience of the benefits.”