Diversity in the boardroom…….does it deliver long term value?

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By Lilian Taylor – Lilian.Taylor@EthicalBoardroom.com

Diversity is a key consideration in all layers of company structure – from board level through all the levels of the workforce.  Businesses are increasingly looking at the costs and benefits of diversity for a company – with particular focus on the boardroom – even adopting measures such as hiring diversity consultants, trainers and experts as well as a developing a diversity role in house.

There are numerous pros and cons to diversity in the boardroom as well as in the workplace in general. 

On the positive side diversity can improve and encourage innovation from the board.  Board members from various backgrounds and cultures do not work nor think alike and this can encourage more innovative thinking leading to new inventions, discoveries and directions to drive the company forward. A further benefit can be a boost to profitability and an improved bottom line; a diverse board has a broader perspective and insight and knows how to guide and advise a company in a variety of avenues. For example, a diverse board may be better able to identify where to market products and services to a diverse consumer population. A broader understanding in the board room means a broader understanding of the market that the company is operating in and can lead to improved profits. A variation in talent can be another benefit – limiting the views of the board by limiting the profile of board members can be costly and limiting to company success.  A variety of board members with different skills, experiences and backgrounds are able to specialise and address various growth areas in the enterprise. A diverse boardroom brings a range of skills and strengths towards tackling business challenges.  Numerous studies in this area have indicated that diversity can have a positive effect on the company. One of the primary advantages to having a diverse board is the synergy that occurs between people from different backgrounds, cultures and values. Collaboration among diverse populations can bring out the creativity in otherwise bland work teams.  A diverse board can also foster a culture of diversity across the entire company – leading to improved creativity, innovation and teamwork across the business.  A diverse board can also be good for the company image – stakeholders and clients have positive responses to company’s led by a diverse board.  This can increase the client base, improve relationships with suppliers and other business partners and also have a positive effect on the stock price. 

However, there are numerous opponents to diversity in the boardroom – often armed with a number of valid arguments. The primary concern is that diversity may be unnecessarily enforced to the point of sacrificing productivity in other areas. For example, opponents may argue that filling quotas for women and minority members on boards can lead to the most skilled members not being selected. This can be damaging to the business and the profits of the company in the long run.  This can also create a culture of unease and tension in the boardroom which can trickle down through the business and cause long lasting harm.  Additionally, when diversity becomes the primary concern, members of non-minority groups can sometimes feel excluded, and can feel that minority groups are receiving preferential treatment.  Conflicts can also arise from diversity – differences can create misunderstandings creating confusion in the boardroom.  Board members can feel threatened or even annoyed by other members with views and backgrounds very different from their own. Constructive disagreements can become power struggles and create a bad political atmosphere that hinders project advancements. Another drawback is that of bureaucracy. Decision-making may be delayed due to diverging views and opinions, thus corporate decisions and actions may end up taking more time and costing the company. Sometimes diversity can lead to counter-productivity – dissimilar cultural identities and values, negatively affect the overall spirit of the board, which is essential for reaching high-levels of productivity. Another drawback can be a feeling of disunity. Everyone in the board might have a different opinion on the way business should be run and managed and this can lead to board fragmentation.

Taking a consideration of the costs and benefits of diversity in the boardroom can be important to company success. By harnessing the benefits and acting to minimise the costs a company can bolster success further in this area.  Certain steps can be taken in order to manage a diverse board – such as creating a culture that recognises and welcomes cultural differences; one that adapts to new board members instead of enforcing the traditional corporate culture on them. A culture of communicating and understanding differences in the boardroom can be highly beneficial and profitable for a business.  Overall, the goal should be to foster a culture of diversity, but not at a cost to the success of the company. 

 

Attribution – Photo by California Department of Insurance Diversity Taskforce