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Boards Need the Challenge that Diversity Brings

April 12, 2017

 

First published at icsa.org

 

Neil Tsappis examines Sir John Parker’s argument that board diversity is important to corporate success

 

Sir John Parker, the Chairman of Anglo American, said in the March 2017 issue of Governance and Compliance that ‘challenge in the boardroom is a very important element of corporate success’. He emphasised the need for diversity in the sense of the different mindsets necessary to open new possibilities and to disturb the status quo.

 

Some may argue with that standpoint; there are numerous examples of successful companies that are not great exponents of diversity. Typically though, they are relatively specialist businesses, operating in comparatively confined markets. They rely heavily on the technical knowledge of a few senior executives, supported by fairly like-minded non-executive directors, who reinforce the organisation’s mindset while providing added-value largely around the periphery of the core strategy.

 

Adverse conditions – whether trading-related or more fundamentally systemic – may occasionally create stormy waters. While the senior leadership remain in familiar territory the chances of successfully riding out the storm can be high. The subsequent investor relations message is often clear and uncompromising: the business model is robust; the leadership team is strong; and the financial results are positive under the circumstances. Investors’ trust is undiminished.

 

However, without diversity, unforeseen and therefore unprepared-for events can cause significant shock to the organisation. This is where the counter-argument falls down. There are many examples of such companies in the past and more recently which have suffered more damage than was necessary.

 

These instances not only damage investor confidence, but also that of employees, government and society in general. It does not necessarily follow, however, that more diverse boards will avoid such catastrophes; indeed several have not.

 

That fact emphasises the compelling case put by Sir John: different mindsets and disturbance of the status quo offer a more robust safeguard. However, that must be in a context of scrupulous practice, bounded by a culture dedicated to open disclosure and trusted challenge within the boardroom.

 

Sir John added that ‘things need to change...there is inbuilt bias in some companies and they really need to look at themselves.’ Particularly in this Brexit epoch, where British business potentially needs to operate away from familiar waters, boards need the challenge borne from crafted diversity.

 

Such enlightened foresight offers a defence against business contraction in coming years. Furthermore, it can open the new possibilities our investors and society need, creating more world-class businesses while we reposition ourselves in the world. Finally, wider trust would have a better chance to flourish, and we sorely need more of that.

 

Neil Tsappis FCIS

Neil Tsappis is a strategic company secretary and governance expert.

 

 

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