Why should non-diverse boards set off alarms?
By Lucy P. Marcus
Discussions around diversity in the board room often focus on gender, and indeed women are severely under-represented on boards. Importantly, though, the lack of women on boards is a reflection of a wider problem: it is one of color, age, international perspective and more.
A lack of diversity is not simply a problem of “optics.” It looks skewed not to have a diverse board; but just because in the modern world it looks odd, does it make a difference in real economic terms? Does it actually affect the bottom line? To my mind the answer is a resounding yes. We do not need diversity for diversity’s sake, but because board diversity contributes to the profitability of the business.
There is a fundamental economic reason why diversity is important: diversity of thought, experience, knowledge, understanding, perspective and age means that a board is more capable of seeing and understand risks and coming up with robust solutions to address them. Businesses led by diverse boards that reflect the whole breadth of their stakeholders and business environment will be more successful. They are more in touch with their customers’ demands, investors’ expectations, staff’s concerns and they have a forum inside the board room where these different perspectives come together and successful future proofing business strategies can be devised.
An argument I have heard against actively seeking diversity on the board is a fear that too much diversity and independence of thought can be damaging to the cohesion of the board. Yet, for healthy boards with capable chairs, the very opposite is true. Board cohesion is vital, and everyone needs to be moving in the same direction, but within that agreed direction, the modern board requires open, constructive and dynamic discussion, rooted in respect and regard for the people around the table.
To come to the most robust conclusions, there needs to be rigorous discussion and action drawing on a whole range of stakeholder perspectives, fueled by as much diversity of thought and experience as possible. If everyone on the board is the same, then discussion will be dull, decisions stagnant, and the business will suffer. In my experience the result of a diverse dynamic group is a more capable and better functioning board that can withstand the challenges of an ever-shifting landscape in which the organization it serves operates.
It is not sufficient to have “diversity policies” in place. If a business is not demonstrating in deed that it values diversity, diversity policies are worth less than the paper they are printed on. Diversity is a matter of organizational culture, and significantly this is set through example from the top. A diverse board demonstrates that diversity is a value that the company holds throughout its business—the resulting culture then is not one in which the mentality is one of the lowest common denominator (how little can we get away with?), but one in which diversity is valued as part of building a robust and sustainable business. Diversity then becomes part of very DNA that marks a business out as healthy and ready to face the future.
Diversity is not a static one-time goal boards need to achieve, but one that poses a constant challenge of renewal. Good corporate governance requires “turn over” in the board room so organizations are capable of dealing with the challenges of today and the tomorrow.
In an ever more global business environment, diversity also has an international dimension that extends beyond gender, culture, age, etc. Every board needs to keep a finger on the pulse of what is happening around the world. International diversity broadens a board’s global knowledge and understanding, and how this affects the environment in which the organization it serves operates. International diversity means the best boards will be able to be proactive in instituting these changes, striving to live up to the highest standards of corporate governance from around the world, not simply waiting for the world to force them to do so.
When I see a business with a board that has a preponderance of people with similar, if not identical, profiles, it is a signal it is not a healthy business. It is a canary in a mine that says they are not looking after the fundamentals of the business. Non-diverse boards set my alarm bells ringing because it is good corporate governance and good business sense to have diversity of thought, experience, knowledge, understanding, perspective and age, as well as a reflection of the whole range of a business’ stakeholders: customers, employees, investors and the communities in which they operate. If a board is not diverse, it makes me wonder about the business as a whole.
(Note: This article was posted on The Huffington Post and an extended version of this was originally published on the Marcus Ventures website. Also, Lucy recently gave a TEDx talk on Boardroom Activism.)
About Lucy P. Marcus
The founder and CEO of Marcus Venture Consulting, Lucy P. Marcus currently serves as the non-executive chair of the Mobius Life Sciences Fund and as a non-executive director and chair of the board audit committee of BioCity Nottingham. She is a fellow at the University of Cambridge’s Judge Business School and a member of the board of IE Business School. She is a prolific writer on global economic trends and best practices for corporate governance, venture capital, entrepreneurship, biotech, cleantech and women in business, and regularly speaks on these topics to diverse audiences around the globe.
Follow Lucy P. Marcus on Twitter: @lucymarcus
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