Can we make all male boards extinct?
Despite female participation in the workforce increasing and research indicating that diverse teams are more likely to achieve better business outcomes and outperform on profitability, the percentage of women on boards in Ireland remains significantly lower than that of other countries. This includes the UK where the number of boards considered to be gender diverse has reached the highest level yet. Investors, regulators and the government continue to push for change to improve gender balance on boards. While some progress has been made to improve gender balance, more needs to be done to increase momentum and make all-male boards a thing of the past.
The overall percentage of women on all companies listed on the Euronext Dublin market currently stands at 16.4%. Disappointingly, almost one third do not have any female board members. Earlier this year the government-sponsored Better Balance for Business Review Group set various targets, including a target that by the end of 2019 no company traded on the Euronext Dublin market should have an all-male board. Recent updates from this Review Group indicate that progress has been slow and at least 12 companies look set to fail this target.
The targets set are not unobtainable. Here in Ireland there is a significant pool of senior female executives with valuable skills, experience and perspectives that boards need, yet these remain underutilised. Diversity is recognised as a key business issue, not just a matter of equality, and we need to see change now. Failing to improve gender balance will have a detrimental effect on Ireland’s reputation and competitive position in the global marketplace. There are various steps companies can make to help shift gears and create more diverse boards which are better positioned to perform in today’s rapidly changing business landscape.
Case for Change
The business case for diversity is well established. Deloitte research indicates that diverse and inclusive teams are:
• twice as likely meet or exceed financial targets • three times as likely to be high performing• six times more likely to be innovative and agile• eight times more likely to achieve better business outcomes.
Looking specifically at gender, the addition of women on boards is reported to have a positive impact, with diverse perspectives providing more challenging debates, improving decision-making and reducing ‘groupthink’. These different perspectives are becoming more important at a time when boards are expected to have a better understanding of their customers, employees and other stakeholders and to take their views into consideration as part of decision-making. Aside from bringing different perspectives, women also have valuable skills and experience to offer boards with recent studies finding they score higher than men in most leadership skills. All of the above provide compelling evidence to improve gender balance at board level.
How can companies drive change and increase the number of women on boards? There are a number of actions to consider, not only to support achieving gender targets but importantly, to help shape the optimal composition of boards.
1 Set a culture that promotes diversity and inclusionOne of the most important actions, which underpins all others, is for the board to set a culture that promotes diversity and inclusion at every level of the organisation. This starts with recognising the value that diversity brings, not simply seeing it as a tick the box exercise, and avoiding tokenism at all costs. To change the status quo, boards need to lead by example and take action to address barriers, challenge unhelpful behaviours and mitigate biases.
2 Broaden the search poolTo recruit more women on boards, the pool from which they are drawing potential directors needs to widen and deepen. A simple step towards this is to review the selection criteria to ensure that it is not too restrictive, determining absolute ‘must-haves’ and separating them from other ‘desirable’ factors. This enables boards to attract a more diverse group of candidates for selection purposes. Another step that can be considered is to move away from recruiting from traditional backgrounds, such as previous CEO experience or finance expertise. While boards will require some members with these skills, technology and HR expertise are becoming more and more relevant as the role of the board evolves to increase focus on innovation, digital, customers and talent.
3 Support female talentIt is concerning that only 45% of boards think their executive pipeline will be sufficient in providing a sustainable pool of talented and diverse board members. Everyone has a role to play in encouraging women to realise their leadership potential in the boardroom. Boards and nomination committees have a responsibility to ensure that the companies they are governing are developing a diverse pipeline. This means adopting meaningful initiatives that empower female employees. Examples include: providing formal and informal mentoring programmes; sponsoring high performing females; providing leadership and governance training; and supporting them to secure external appointments outside their organisations. All these can help pave the way and increase female participation in the boardroom.
In addition, the support of experienced board members and leaders in the business community can be very powerful. This can be through leveraging their networks and providing introductions, as well as advocating for board ready females. It is positive to note some of this is already evident in Ireland through various initiatives, including those led by 30% Club.
4 Think beyond genderThe ultimate outcome of a well-balanced board is a group that brings a variety of perspectives and exhibits diversity of thinking. This requires going beyond gender to consider other demographic characteristics such as race, age and socio-economic background. There is also a horizon beyond demographic diversity – cognitive diversity. Cognitive diversity encompasses elements such as educational background, functional experience and personal characteristics that impact an individual’s way of thinking and approach to problem-solving. To achieve true diversity of thinking, boards must consider both. The good news is that addressing demographic characteristics helps elicit cognitive diversity, making it a good place to start.
5 Enhance governance structures and processesFollowing recent changes to the UK Corporate Governance and other guidelines, the role of the nomination committee has evolved substantially to move it firmly into the spotlight. Investors are also increasing pressure on nomination committees to help achieve progress on gender diversity with some planning to introduce votes against all committee members if a company does not have at least one female board member. This is a clear sign the investor community want to see change. As a result, it is critical that the committee has the right composition and up to date terms of reference to enable it to fulfil its mandate. Further, it needs to be looking at all of its expanded responsibilities through a diversity lens. This includes: monitoring board composition and performance; leading the selection nomination process; and overseeing succession planning and talent development. Although these processes have become more sophisticated for leading boards, for many there is still room to add more rigour and to fully embed diversity factors, as well as increase transparency.
Time to Shift Gears
Although female representation on boards is increasing and some companies have made good progress, overall women remain underrepresented and the pace of change is too slow. Gender diverse boards will be better positioned to navigate today’s challenging and fast changing business environment.
To make traction the boards lagging behind need to shift their approach into high gear. Now really is the time to change the board composition paradigm and make all-male boards an extinct species.
Melissa Scully is a director at the Deloitte Ireland Centre for Corporate Governance
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