The potential consequences of encouraging diversity in boardrooms

Corporate governance trends, especially major global ones, tend to have repercussions and blowback that are little examined at their beginning. The current ESG trend is one and perhaps the hottest boardroom wave of the past few years has been DEI (diversity, equity and inclusion).

Whether diversity in boards benefits the company is arguable and evidence available is not supporting one or the other point of view. A recent analysis of 100 plus research studies examining the correlation between the number of women board members and enterprise performance shows only positive correlation with accounting returns, and nothing with competitive performance. According to a Harvard Business Review article, many other studies show no such correlation with performance and more diversity in boards.

We at Medici Institute had interacted with several board members across the Middle East on this issue of diversity in boards and performance, but we could not establish any guaranteed performance results just because there were more women on board. It seems there are other factors than just diversity that drives performance such as culture, control and real independence of board members.

However, a diverse board has some major benefits including better decision-making capability, more effective utilisation of talent, increased corporate reputation and improved investor relations.

We have noticed over the years that many boards get trapped into what we call “group think”, which occasionally blindsides them from taking the right decisions. This is is definitely a mental block to avoid conflicts and arrive at consensus fast. This will deprive in-depth discussions on matters that matter. Directors with diverse backgrounds of gender, caste, experience, etc can independently bring in perspectives that can facilitate better decision making.

Diversity and inclusion lead to different personal characteristics that trigger dissimilar thinking, leadership style, varied risk appetites and emotional intelligence. Creative solutions will be an outcome and better oversight, another. As more and more enterprises from here are competing globally, board members need to understand diverse requirements of stakeholders including the varied needs of customers. Besides analysts globally will check if the DEI norms are followed by the enterprise and this will have a bearing on the market perception. Regulations will also demand compliance on this front. A board that is balanced in diversity and inclusion can deliver all these expectations better.

No matter the country or business culture, there always seems to be an “in” group that makes up the boardroom elite. They sit on boards together, invest together, serve in government together, and probably golf together too. In the US and most western cultures these are from the “pale, stale, male” cadre, but we are sure every country, culture and society likely have a similar boardroom demographic. This group is usually not representative of their society or stakeholders as a whole, typically with more men, older, and certainly with higher income.

Board diversity demands are shaking up this cozy group rapidly (more so in the GCC), often through regulatory or stock exchange quotas. Younger folks, women, and more diverse prospects are being named to the world’s boards faster than ever before.

This is where the unintended consequences mentioned earlier come in. These fresh board candidates bring many assets and talents to the board, such as fresh thinking and the latest tech and market insights. What they don’t bring is boardroom experience. This new board cadre includes many board first timers. They are still at a career notch where the term “board of directors” seems like a distant, sort of scary Mount Olympus where they don’t belong.

Even the sharpest new board members will be ineffective if you set them up for Imposter Syndrome, so it’s time to rethink your board orientation programmes. Too often such orientation sessions still consist of giving the newbie a pile of paperwork, a few contacts, and saying “Let us know if you have any questions.”

Try a broader “affirmative action” orientation plan for unconventional candidates. These prospects don’t know what it is like to sit at the big table, how board members interact, what their duties are as a director, or how they should work with executive management. They will receive their first board book and be lost in working their way through such a pile of documents. They are more likely to either clam up in the board meeting, or pop up with useless comments just to prove they belong there.

It will be wise to assign a mentor to familiarise the novice. Walk the new director through a mock board meeting. Arrange briefing discussions with the chair and the CEO, and also have them introduce themselves to other members. Your heads of finance, marketing, legal and HR should also brief the new director. If possible, invite the candidate to sit in on a board meeting before formally joining the board, and also in some committee meetings.

Ask yourselves what you wish you’d known before your own boardroom debut.

Ralph is a global board advisor, coach and publisher. Muneer is co-founder of the non-profit Medici Institute and a stakeholder in the Silicon Valley-based deep-tech enterprise Rezonent Corp