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October 7, 2020

The Drive for Gender Diversity in the Boardroom

 

diverse-boardroom

Why Gender Diversity in the Boardroom Matters

Boardroom diversity continues to be a hot topic in corporate governance. Institutional investors, proxy advisory firms, and even lawmakers are all focused on the topic. They’re pushing boards to make changes to increase their diversity, and many boards recognize the value of increasing diversity. Studies have repeatedly shown that increasing diversity is not only the right thing to do for an organization’s culture, it also leads to better business outcomes. Increased diversity leads to smarter decision-making, contributes to an organization’s bottom line, and powers innovation, among other benefits.

Often, CEOs are apt to create boards that think like they do with the thought of easy decision-making processes, congruent viewpoints, and similar guidance. However, a board built on this process has the inherent risk of insularity, especially when companies’ globalization makes business practices more complex. The limitations of a homogeneous board are not only a detriment to its members, but it also creates additional risks to the organization it serves.

The lack of a diverse board of directors often creates a pitfall in board decision-making and a groupthink mentality. Groupthink is a psychological behavior that minimizes conflicts and reaching consensus decisions without critically evaluating alternative ideas in a cohesive group environment. Association of Chartered Certified Accountants (ACCA) states, “it is believed that a diverse board is able to make decisions more effectively by reducing the risk of groupthink, paying more attention to managing and controlling risks as well as having a better understanding of the company’s consumers.”  Mike Myatt, a leadership advisor to Fortune 500 CEOs and Boards adds, “a board’s purpose is to govern not comply. A good board listens, contributes, challenges, and when necessary pushes back.” Diverse boards simply offer a depth and breadth of insights that non-diverse boards cannot provide to their organizations.

“Directors broadly recognize the benefits of diversity in the boardroom—94% agree that board diversity brings unique perspectives to the boardroom, 87% of directors say board diversity enhances board performance and 76% say it enhances company performance.” (PWC) Our boardrooms should reflect the diverse world we live in, and business leaders are responsible for executing this vision. Leaders can reset the tone at the top when it comes to diversity — and, as a result, make gender parity a priority throughout an entire organization.

Gender Diversity is Possible

With strong leadership willing to change the board’s composition, qualified minorities and women will have a seat at the table. While achieving gender diversity is imperative, companies are also increasingly seeking full diversification of their boards across gender, age, race, and sexual orientation. 

“In the US, 17.6 percent of board seats are held by women, up from 14.2 percent two years ago. While there are no national quotas for women on boards, state measures have been passed to help increase women’s representation on boards. This includes a measure in California, which became the first state to require specific numbers of female directors on the boards of public companies.” (Deloitte)

We’re making progress, but it is too slow. That’s the key finding of the sixth edition of Deloitte Global’s Women in the Boardroom report, which found that women hold just 16.9% of board seats globally. That is an increase of 1.9% since 2017, but if this rate of progress holds steady, it will take more than three decades to achieve gender parity in the boardroom. Even then, actual equality is likely to be concentrated in the few countries that are making concentrated efforts to address this issue. 

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5 Long-Term Strategies to Work Toward Board Diversity

Ultimately, diversity is about each director’s caliber and viewpoint and how diverse views blend in an environment that welcomes opposing opinions.

  1. Determine a goal. Consider percentages and the number of board positions, as well as race, ethnicity, and gender objectives. Ask whether the company will benefit from disclosing board diversity goals.
  2. Consider current policies and practices: have they resulted in racial, ethnic, and gender diversity on the board? Be open to revamping these policies in favor of methods that will promote diversity in the boardroom. 
  3. While board evaluations is a healthy practice, it can sometimes devolve into a perfunctory checkbox exercise. If this is the case with your board, refresh the process to include a whole-board self-evaluation complemented with individual directors’ assessments. Use the resulting information to determine the skills and qualities new directors should possess. Expect difficult conversations to arise from this step.
  4. Commit to strategic board refreshment. Diversity, innovation, and growth can all suffer if boards don’t refresh themselves periodically. 
  5. Make sure the board has a succession plan as a matter of policy. Use board evaluation feedback and business strategy changes to keep the policy up-to-date.

Empower a Diverse Board with the Best Board Portal

Govenda is the Board Success Platform™.  It perfectly blends security, functionality, optimal user experience, and affordability. Fast, intuitive, and flexible, Govenda gives companies the control they require and support when they need it. Designed with input from corporate secretaries, administrators, and board members to enhance board engagement, effectiveness, and governance, Govenda is used by companies worldwide.

Start a conversation today to discover how Govenda can empower your board for better governance. 

Tag(s): Diversity

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