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27 July 2013

Diversity in the Boardroom (2)

Tag(s): Boards
In March 2010 following a Criticaleye event with Helen Alexander CBE, President of the CBI as speaker, I wrote a blog on Diversity in the Boardroom.  (See Diversity in the Boardroom 27th March 2010. Tag Boards). This week I attended another Criticaleye event on the same subject with Robin Buchanan, Chairman of Page Group plc, the FTSE 250 Specialist Recruitment firm, as speaker. Robin is also a Non-Executive Director on the boards of Schroders plc and LyondellBasell Industries NV. He has previously been a NED of two other FTSE 100 companies- Liberty International and Shire plc. After a long career with Bain & Company Robin became the Dean and then the President of London Business School. During and immediately after his tenure the School’s MBA programme was three times ranked the best in the world.

Robin started by saying that he favours diversity in the boardroom for four main reasons. First you should recruit from the widest possible talent pool. Second you needed different ways of thinking on your board. Third you wanted to have different insights on your board and fourth people come from different walks of life and that should also be represented on your board.

While the focus is often on diversity in the boardroom it is actually harder to achieve diversity among top management. The Davies Report which focussed on gender diversity set a target for FTSE 100 companies to achieve 25% of women on their boards by 2015 and no doubt the majority will come close. But only two of them have a female CEO after the retirement of Dame Marjorie Scardino. For Robin the question of diversity is strategic rather than one of governance. Page places women in 47% of its successful recruitments and this ratio is increasing in growth markets in Asia and Latin America. He looks for diversity in a number of criteria but not in all. For example you would not seek diversity in matters of ethics or integrity, respect or courage of independent thought.

So what are the criteria for which you should seek diversity? Robin believes that as chairman of the board you should first list the skills and experience of your board members and classify them by geographies, industries and functions. Then you should identify the key gaps and in your next recruitment look for directors who can fill those gaps. He had done that with two recent appointments and found outstanding candidates. Unfortunately both successful candidates were men. They were fully qualified for the role and were the best available but they did not increase the gender diversity of the board.

He somewhat surprised us by saying that for their next board appointment they had decided to go with an all-woman long list. The group discussed this issue at length and the women in the room confirmed that they would be comfortable with such an approach provided it was absolutely clear that this was not a question of tokenism.

The next question is to make it work. Robin is a senior Advisor in Bain & Company’s London office. During his nearly forty years of business experience he has worked extensively in North America, Continental Europe, Africa and Asia, as well as in the UK. His particular focus has been on transformation strategy and leadership. As a recognised expert on board effectiveness he has identified three types of board. The first is the “Club Board”. Here everyone seems to come from the same mould. All are white males of a certain age, educated at the same schools and universities, and members of the same clubs. If asked to increase the diversity of their board the chairman of the board is likely to think that recruiting men who went to Marlborough rather than Eton or Harrow would do the trick.

The second is the “Challenge Board”. Here everyone seems to think his role is to challenge management. This can be effective up to a point but in the end becomes dysfunctional. Constructive challenge is indeed part of an independent director’s role but so is support, encouragement and, at times, help.

The third type, which Robin clearly favours, is the “Team Board”. Here there is a sense of belonging together. Executive directors want to help their Non-Executive colleagues understand the business while Non-Executives want to help the Executives with the benefit of their probably greater knowledge and experience of the wider world. Does this style always work? Only if the chairman and the whole of the board working together make it work.  I welcomed this analysis but commented that a single representative of the “Club” style could be useful as he would no doubt have many useful contacts while one representative of the “Challenge” style was also useful as a maverick who asks awkward questions.

While the general subject of diversity does not just mean gender diversity there has been an emphasis on gender diversity.  Too much of this is focussed on the board itself when what is needed is diversity throughout an organisation. There is considerable evidence that diverse groups are better at solving problems than groups drawn from a narrow pool of talent. Some of the evidence may not be causative, i.e. well run companies with good people do the right things more often than not and get good results. It may not always be possible to demonstrate that the company got such results because it had a diversely drawn management team and/or board but it’s unlikely to hurt.

However, one should also look for diversity in Robin’s three criteria, geography, industry and function. In my case I do fit the classic mould. I am white, male, happily married, educated at Oxford University and a Freeman of the City of London. But my experience of geographies, industries and functions is highly diverse. I have lived and worked in three different countries and transacted business in another 50. I have worked for British, Americans, Japanese, Jews and Iranians. I have worked in many different industries including airport catering, supermarket retailing, soaps and detergents, toiletries, pet foods and accessories, confectionery, rice, cake and dessert mixes, consumer electronics including television, video, camcorders, cameras, hifi, in car entertainment systems, personal audio and radio, broadcast and industrial electronics including cameras, editing and recording suites, sportswear and foot wear and that’s just in my executive career. In my non-executive career I have served on boards and advised top management of companies in many more different sectors. As for function I was classically trained in sales and marketing but enjoyed general management roles for over 20 years and have been directly exposed to other functional experience such as when I ran a factory while we recruited a new manufacturing director.

I only outline this to point out that Robin is quite right to want to audit the experience of geographies, industries and functions of his board to see where there may be gaps in the matrix of diversity. Issues of gender, race and sexual orientation get a lot of attention and the issues become mingled with issues of governance and even human rights. But true diversity is a strategic issue and should be aligned to the customers and other stakeholders in the business.

Copyright David C Pearson 2013 All rights reserved

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