NEDonBoard explains why board diversity is important and provides actionable strategies for aspiring non-executive directors from non-traditional backgrounds to reach the boardroom.
Board diversity is important because an inclusive board is more representative of the real world, current issues and a company’s stakeholders. Board diversity also brings fresh perspectives to the table and therefore more balanced decision making. It is not a box-ticking exercise, rather it should be considered a sensible and responsible approach to board composition. As well as ethnic and gender diversity, diversity also needs to consider a host of other factors, including age, background or disabilities to name but a few.
The benefits of board diversity and inclusion
There has never been a stronger case or indeed a more receptive and mobilised audience for board diversity. In a February 2015 study (Diversity Matters), McKinsey found that there is a “statistically significant relationship between a more diverse leadership team and better financial performance”. The benefits of inclusive boards are plentiful, enriching boardroom discussions, boosting stakeholder engagement and enhancing the credibility of organisations.
Here are just some of the benefits of diverse and inclusive boards:
- Diverse boards are more representative of the real world and the issues of the moment.
- Diverse boards make companies more representative of their stakeholders.
- Diverse and inclusive boards bring multiple perspectives, which encourages better decision making.
- Diverse and inclusive boards have an empowering effect throughout the wider organisation.
- Diverse and inclusive boards help to identify, attract and retain the best talent for the job.
Do we have diverse and inclusive boards currently?
The question is, do we have inclusive boards in the UK currently? As ever when it comes to matters of diversity, there is good news and bad. Progress is being made in certain areas, but nowhere near as much as we would all like to see in others. To demonstrate the relative improvements and the ongoing shortfalls, diversity is perhaps best viewed through the prism of two of its tenets: gender and ethnic diversity.
Gender diversity is improving
Let’s start with the good news (mostly). New data has shown that for the first time more than a third of board members in the UK’s FTSE 350 companies are women. A 3.8% increase in female representation on the boards of the country’s top businesses over the last year is certainly a welcome move in the right direction. On the whole, FTSE 350 companies have met the Hampton-Alexander Review’s target of making 33% of all board members women by the end of 2020.
However, those figures merely tell part of the story. In actual fact, 41% of FTSE 350 companies have not reached the 33% target. Prompting the Business Secretary, Alok Sharma, to say: “While I am pleased that the FTSE 350 as a whole has finally hit this historic landmark, more than 100 of the UK’s top companies have failed to meet the target. As the UK economy continues to recover from coronavirus, increasing representation of women on boards represents a golden opportunity not only to rebuild but build back better.”
Ethnic diversity is underreported
Now for the bad news. Nearly three-quarters of FTSE 100 companies failed to report the ethnic composition of their boards this year. Those figures, collated by the Investment Association (IA), demonstrate a worrying lack of transparency and accountability regarding ethnic diversity in the boardrooms of the country’s top businesses. According to the Parker Review, FTSE 100 boards should have at least one director from an ethnic minority background by 2021.
That target is made all the more difficult to quantify let alone achieve given the opacity of reporting at present. “The Parker review from earlier this year showed there is still significant progress to be made on improving the ethnic diversity of UK PLC boards and investors need more information to assess a company’s journey to meeting the Parker Review target. Transparency is key,” said Chris Cummings, chief executive of the Investment Association, in Investment Week.
Against this backdrop, the ‘Change for Race Ratio’ campaign, launched at the end of October 2020 which calls for all businesses to set and publish clear targets for greater racial and ethnic diversity at board and senior leadership levels. This is a welcome initiative to move the dial.
Taking action to create more inclusive boards
Of course, the most effective method of balancing out the diversity of modern boards is to bring more executives and non-executive directors (NEDs) from different backgrounds into the boardroom. If you would like to make an impact at board level, NEDonBoard can help you to take your first steps towards becoming a NED. We have a wealth of learning opportunities to fast-track your boardroom career, including our free webinar “How do you secure your first non-executive role?” for a wealth of tips and proven strategies.
The NED Accelerator® Programme is our tailor-made online training course that provides aspiring NEDs with the knowledge, skills, tools, and strategies needed to win interviews and start their non-executive career. Learn in your own time and at your own pace with our fully accredited industry qualification. The NED Accelerator Programme includes tailored modules, hours of exclusive content, high-impact CV templates, and access to the thriving NEDonBoard community.