“We do Want diversity but business performance is what counts”
We have heard many variations on the view above: Private companies are operating in a tough competitive environment, often with tight margins and significant operational challenges. Any candidates for board or executive positions must, therefore, be the best for the job – with diversity being inevitably squeezed out as a secondary priority.
Yet, the drive for diversity is proven to be far from a ‘nice extra’ driven by feminism, equality and fairness (though it is that too). Rather, an established body of research shows diversity is a key component in equipping companies to successfully navigate today’s fast-changing operating environment.
“The drive for diversity in the boardroom reflects the importance of getting the best talent into the roles with most potential for influence. Successfully broadening the perspectives and priorities in non-executive roles will underpin the strength of the UK economy.”
Rowena Ironside, founding Chair of Women on Boards UK
Numerous research studies have found that diverse boards correlate with better business performance. This is true of gender diversity and ethnic diversity.
- Companies with 15% women in senior management have 50% higher profitability (Credit Suisse 2016)
- Companies with at least one female director yield 3.5% excess returns (Credit Suisse 2016)
- Companies with ethnically diverse executive teams have a 36% greater likelihood of financial outperformance; and 25% for those with gender diverse teams (McKinsey 2020)
Firms listed in the FTSE indices are hearing this message, albeit slowly: over 30% of NEDs in the FTSE 350 are female, up from 23% in 2016 (Hampton Alexander Review, 2019); FTSE 100 firms with no director of colour on their board has decreased to 37%, from over 50% in 2017 (Parker Review, 2020). More progress is needed and at a pace, but the consensus on the benefits of diversity is bedding in.
So why do diverse boards deliver more?
Much as some may like to think so, women and BAME individuals do not make better NEDs or CEOs, per se. Nor should we be aiming to remove white men from boards and senior roles.
Improved performance comes from decision making informed by a range of perspectives. It is the ‘diversity of thought’ which is important to critiquing assumptions, bringing in a broader range of factors for consideration and fully understanding the company’s customer base.
It is true that the pipeline of senior white men is inevitably fuller than that of similarly experienced women and BAME candidates. This does not mean, however, that there are insufficient well-qualified diverse candidates to fill a significant proportion of the senior roles in the UK. But it does mean that those candidates are much less likely to fit the traditional mould.
Turn on the floodlights to all talent
Seeking board diversity is not about giving those from under-represented groups preferential treatment. It is about shifting your recruitment lens to consider the widest possible pool of candidates and assessing them objectively based on their expertise – whilst considering your genuine business need for cognitive diversity in the boardroom.
All change can feel risky, particularly in a climate where risks are high. Yet, risk is also apparent in continuing with decades-old models of business-asusual in a fast-changing world.
To improve the odds of successfully appointing from the broadest possible pool of top talent, the research suggests that you need to change your recruitment process.
In “Turn on the floodlights: how to recruit for diversity on your board” we make some suggestions on how that can be done, based on our extensive experience of working with candidates and board as well as the international research on diversity in a corporate context.
Our suggestions here are not prejudging hiring decisions. Rather we are challenging boards to turn off the spotlight which finds new board talent in a particular mould – and turn on the floodlights to considering candidates with different styles of leadership and background.