ODGERS RAY & BERNDTSON
the board paper
The value of diversity in the
boardroom
Virginia Bottomley
The emphasis that is increasingly being placed on diversity in both executive and non-executive
directors on the boards of companies in the UK is particularly welcome. In today’s corporate
environment there is increasing demand for openness, transparency and participation on
boards. As well as adherence to the corporate governance code this requires boards to have
different views, different perspectives and different ideas.
The benefits of diversity
In his review Derek Higgsi invited companies to ‘comply or explain’; what the corporate world
should not do is complain. The voluntary code in the UK offers companies guidance and avoids
the inflexibility and cost of over-prescription. This does much to make board composition and
decision-making transparent, although shareholder confidence is eroded with each new
corporate governance scandal. Regulation limits the freedom of boards and executive managers
to invest and innovate, which in turn stifles the potential for wealth creation.
Each board appointment must have the central aim of improving the company’s prospects and
setting the right tone at the top of the organisation. The new director has to offer added value
or lose credibility. The value of enhancing the gene pool seems intuitively obvious but the
benefits derived from a diverse board need to be identified. Firstly, diversity reduces the risks
arising from everyone thinking the same. A monoculture seldom tests its own assumptions and
has a clear framing bias. Secondly, diversity is a defence against the unpredictable. A board’s
responsibilities concern strategy and succession, and it is frequently in times of crisis that
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boards come into their own. These crises can
be unpredictable and a diverse board should
help; common sense suggests that groups with
a wider skill, knowledge or experience base
will generate and ratify higher quality
responses to problems.
There is benefit to be gained from having
insiders who understand outside views.
Boards can be caught out by mood shifts in
the press, in public opinion, or in a regulator,
causing bias in investors’ judgements of a
company’s management.
The composition of the Board sends
messages to customers, clients, investors
and employees, who may choose a company
on the basis of its perceived outlook and
corporate values. The issue of reputation is
a critical concern in the corporate world;
threats to it are increasingly identified as
one of the greatest risks. Corporate social
responsibility has developed a high profile
in society. The ethos and values of the
company need to be recognised matters.
This helps to attract investors, talent and
the approval of the wider community. In an
age where a growing proportion of the
economy and emerging commercial
opportunities lie in the interface between
government and private enterprise, CSR
takes on an increasingly crucial role.
Reluctance to appoint board directors
from diverse backgrounds
All the evidence is that individuals tend to
appoint in their own image. Traditionally, the
old school tie provided a mark of confidence.
Working on a board is an intimate experience
where trust is at a premium and it is therefore
understandable that the first instinct is to find
someone who is ‘one of us’. As a result the
debate on diversity has to be sufficiently
intense to break through this comfortable
status quo.
The question is how to imbue a sense of
confidence and will in boards to seek out
talented and diverse individuals, and then
trust them, in the interests of the long-term
success of the board? As John Maynard
Keynes said “the greater difficulty lies not in
persuading people to accept new ideas – but
in persuading them to abandon old ones”.
Designing each board
It is important that board appointments are
driven by the requirements of the board and
the strategy of the company, using a formal,
professional approach and including a survey
of the board’s strengths. This structured
approach identifies specific skills and
perspectives that would strengthen the board,
and tightly defines the criteria for the
subsequent search for potential board
appointees.
Diverse environments inevitably result in a
diversity of communication styles and scope
for misunderstanding. This is important to
consider because clashes in communication
styles have caused otherwise compatible
appointments to fail. For example, some
people’s behaviour can come across as
ODGERS RAY & BERNDTSON
nervous, or lacking in conviction, when in fact
the opposite is true. The challenge for board
members is to understand each others’
communication style, and interpret and
respond appropriately. Formal training and
the experience of rising senior managers, who
have grown up with diversity in their
colleagues and careers, will help companies
realise the business benefits of diverse boards.
Let me list some key diversity points.
Achieving appropriate diversity
Gender. Women make up just 4% of listed
company directors and more than 99% of all
listed companies are led by men. Laura Tyson,
Dean of London Business School, was asked
by Patricia Hewitt, Trade Secretary, to devise
a toolbox for increasing diversity on company
boards. Her reportii confirmed that the lack of
women on many boards is not a function of
supply. What is sometimes lacking is
confidence and reluctant chairmen who may
still say “I know we should have a woman on
the board, but I don’t think my other directors
are ready yet”. This is increasingly puzzling;
directors work with senior women every day,
heading company divisions or providing
corporate finance, audit or legal advice. I
suspect that the directors are more ready than
the chairman thinks.
Ethnicity. Just 1% NEDs are from black and
ethnic minoritiesiii, implying that boards are
missing important breadth of understanding
of their customers, clients and investors, and
employees are missing ‘role models’ on the
board. Whilst efforts are currently being made
both to encourage people to join boards, and
urge boards to widen their searches to include
people from ethnic minorities, there is still a
long way to go.
New and old faces. The significance and
nature of HR decisions is altering. In the past,
blue chip companies and the civil service took
on a cadre of talented individuals at 18 or 21
whom they trained and retained through their
careers. A few reached top positions on the
board. This is progressively challenged by
companies in their policy decision that 20% of
their top roles should be filled from outside.
There is strong recent precedence for the
appointment of individuals to boards who had
not experienced the old corporate culture.
Wider perspective
Private/public sector backgrounds. The notfor-profit world yearns for individuals with
commercial acumen, IT, HR and finance skills
honed in the commercial world. At the same
time the corporate world needs individuals
who can read the Government’s agenda and
consider the perspective of the wider
stakeholder group. The skills and culture
transfer in a diverse board is valuable for all.
Personality. It is vital to remember that you
are recruiting a team. Some people think this
implies homogeneous boards, where everyone
fits in because everyone is the same.
However, in building an effective team the
opposite is true: for a team to be more than a
sum of the parts, the parts should be
complementary and balanced. This requires
an awareness of the contribution and
characteristics of different personality types
ODGERS RAY & BERNDTSON
on the board using an appropriate personality
testing or teamwork methodology.
Diversity is about effectiveness more than
equal opportunities; our concern should be to
avoid wasting the impressive talent pool that
we have. Boards of UK companies and public
sector organisations have much to benefit from
the contribution of a diverse group of board
members working as a team. The board is a
team which shares responsibility for all
company decisions and not a committee of
representatives each arguing their corner. Not
every ‘non-traditional’ person is right for your
board, and nor is being ‘different’ enough in
itself. All board members need to make a
broad contribution.
i
Review of the Role and Effectiveness of Non-Executive
Directors, January 2003.
ii
The Tyson Report on the Recruitment and
Development of Non-Executive Directors, June 2003.
iii
Hemscott survey for Higgs review, July 2002.
Taken from an address given at an ER Consultants
Annual Symposium, Queen’s College, Cambridge.
Virginia Bottomley heads the Odgers Ray & Berndtson Board Practice. She has a wealth of experience gained over
30 years in the commercial and public sectors, as well as from responsibilities during her political career, including
Secretary of State for Health. She is a member of the Akzo Nobel NV supervisory board.
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