05 March 2019 by Bernadette Barber
There is a firm business case to be made for increasing diversity
In recent times we have (rightly) had increased focus on improving the gender balance on boards, with targets and, in some countries, quotas being set for the proportion of women appointed to boards.
More work remains to be done in this regard but it has certainly demonstrated that the introduction of diversity targets and reporting requirements can be effective in driving change, albeit that some companies may have embraced the challenge with more enthusiasm and energy than others.
Ethnic and cultural diversity has also recently been the subject of active debate, with the Parker Review in the UK recommending targets for the appointment of individuals from ethnic minority backgrounds to the boards of FTSE100 and FTSE250 companies by 2021 and 2024 respectively.
The purpose of all this action on diversity is not just to achieve fairness and equality of opportunity. It is to enable the business community to obtain the considerable commercial benefits which more diverse boards have been shown to deliver. ‘Group think’ was identified as one of the significant factors which contributed to the financial crisis of a decade ago. But the benefits of diversity go beyond those of mitigating the risk of failure. There is clear evidence that diversity brings improved business performance.
It stands to reason that boards where debate is informed by a wide range of views, experiences and perspectives, will consider matters in a more rounded manner rather than navigating their way to decisions guided only by a narrow set of opinions.
If there is one stand out factor likely to influence an individual’s outlook, that factor is age. It appears that directors would generally agree with this view. In the PwC 2017 Annual Corporate Directors Survey, 90% of directors rated age diversity as important, that being a higher percentage than rated factors such as gender and race as important.
Older board members are likely to have the edge when it comes to breadth and depth of experience and, with non-executive directorships often appealing to those who have already retired from their executive careers, it will perhaps always be the case that the average age of board members will be relatively high. However, without wishing to succumb to stereotypes, younger board members may be more likely to bring tech savvy knowledge, contemporary views on consumer expectations and familiarity with current social media trends.
Given the advantages that younger people might have over their older counterparts in such areas, it is unlikely to surprise anyone that the 2018 UK Spencer Stuart Board Index found that boards with the most young directors were companies within the technology, media and telecommunications sector where the average age of individuals on their boards was a relatively youthful 57.7 years!
Squaring the need to appoint younger directors with the desire to appoint board-ready personnel with the knowledge, maturity of thought and skills to contribute fully to the governance and leadership of the organisation may be subject to barriers, however – whether perceived or actual. And it certainly appears that boards are struggling to move the dial on age diversity with the trend over the last ten years, according to the Spencer Stuart report, being an increase in directors’ average ages rather than the contrary.
Identifying people who fit the bill on all bases may require some different thinking to be applied to the issue.
In considering board diversity, reference is frequently made to the need to manage the pipeline of high calibre individuals who have the potential to rise to the most senior levels. Certainly encouraging those in executive positions to take on a non-executive directorship has long been recognised as a potentially valuable way of broadening their experience and providing them with a hands-on opportunity to see governance in practice elsewhere. For companies seeking younger directors, recruiting one or more non-executive directors from the pool of other companies’ executive talent may be one answer.
In the first board meetings I ever went to, as an aspiring Chartered Secretary in my early 20’s, I lowered the average age in the room by some considerable amount. Whilst these days I am frequently not the youngest person in the room, nor am I generally anywhere close to being the oldest. We know that directors think that boardroom age diversity is important but until board recruitment more commonly targets the appointment of younger people, it seems likely I shall remain the right side of the average age of directors in UK boardrooms for some time to come.