What does good board diversity look like?

This is the third in a series of articles by Sally Freeman, Partner in Charge of KPMG’s Risk Consulting and Peter Nash, KPMG’s Australian Chairman, that looks at the changing context of governance, and how to be a board of tomorrow, today.

Boards of tomorrow need to reflect upon, and understand, the dynamics of society today and be prepared for constant change at an ever increasing pace.

We hear a lot about the need for diversity and for the most part we understand what it means – that having a board that consists of more than one ‘type’ of person will bring great benefit to an organisation. Diversity brings new perspectives, a move away from the potential ‘group think’ mentality that can occur when like-minded people discuss issues and make decisions. Boards have traditionally acknowledged the need for diversity of skills around the board table, however, in more recent times, there has been an increased focus on gender. This, in turn, has brought about a renewed intensity of focus on the broader aspects of diversity and strategic composition of the board, considering a broader range of attributes such as ethnicity, age, perspective, experience and now, even tenure on the board.

So while we understand the benefits of diversity, do we actually know what ‘good diversity’ looks like? And how are we managing some of the many challenges that arise from having a diverse board? In some respects, the benefits and challenges of having a diverse board mirror the benefits and challenges we see in local and global communities.

As we recognise the diversity around us, and how it impacts our business, we need to have a board that understands and can adapt the business to respond to the current zeitgeist – whether it agrees with it or not.

There are many organisations that have managed to adapt, making real progress in terms of issues such as climate change, human rights, ethical behaviour (conduct) or digital fraud. They have heeded the call and been able to move with the times to evolve with the changing business landscape.

However, sometimes boards are reluctant to adapt. These are the boards that struggle to see how current social, environmental, geo-political or technological issues could impact their business – at times only recognising the consequences once it’s too late. There is further evolution required for those boards who take the view that these issues are ‘not real’ or do not impact their organisation. Diversity can assist with surviving this evolution.

Good diversity requires a good attitude

Diversity is as much about attitude and experience, as it is about ‘getting the right numbers’.

At a KPMG Board of Tomorrow event, a hypothetical set of CVs was provided to a panel of directors who were asked to select a new board member for the fictitious company of which they had been asked to be directors. The panel consisted of a balance of men and women who currently hold board positions with major Australian organisations, or who work in board recruitment.

The CVs were stripped of identifying characteristics such as gender, age and background. The only information provided was that of skills and experience and focused on the different attributes that each candidate offered.

When asked what gender or age each candidate might be, a range of interesting ‘unconscious biases’ were drawn out by the panel, to help highlight how easy it is to jump to conclusions about people based on normal social conditioning. These unconscious biases made assumptions such as women providing marketing, human resources and ‘softer skills’ experience, whereas candidates that provided engineering, technical or entrepreneurial skills were considered to be men.

It is often these assumptions and stereotypes that can limit our thinking with respect to an individual’s background and the skills that they can offer. These stereotypes can influence the recruitment process.

In similar examples, a recent 30% Club report, Barriers to Progression1, highlighted some of the attitudes still at play in corporate Australia. Alarmingly, the quotes of the many chairs and non-executive directors surveyed displayed strong biases and assumptions regarding why they do not or cannot recruit female directors, not all of them unconscious.

For example:

“We need someone to chair our audit/risk/finance committee and there just aren’t enough women with deep financial expertise.”

“We believe it will adversely impact the dynamics of the board which is now functioning really well – collegiality is too important.”

“We don’t think our board is suitable for women as they have to visit difficult environments such as PNG, Indonesia and South America.”

“The business case for diversity is simply not there, let alone just concentrating on gender diversity.”

Some of these are alarming, but they are actual quotes from 2016 surveys. Whilst there are no similar studies that look at other traits such as ethnicity or age, it seems reasonable to expect similar assumptions and biases exist. For example, if we posed a similar question about barriers to progression for people from diverse backgrounds, how likely is it that we would get similar responses?

Good diversity is a process not an outcome

A key part of ‘good’ diversity is to first recognise your own conscious and unconscious biases, which can arise either during recruitment or once a director has been appointed. And again, diversity is not just about personal or cultural traits, but also about the skills and experiences, (including international experience in culturally diverse markets) that an individual can bring.

Good diversity is also defined by how well a group of diverse individuals work together. This relies on several key factors including issues we have discussed in earlier papers, such as:

• A board that has the ability (individually and collectively) to be agile and adapt to new environments, to be broad in their thinking and avoid the comfort of ‘group think’.
• A board that constructively challenges without being distracting.
• A chair who effectively manages different voices and opinions around the boardroom table, avoiding conflict but creating space for open and constructive discussion. Robust discussion is not the norm for some cultures. The chair needs to understand how to make discussions collaborative and effective.
• A chair who builds a culture of respect and tolerance rather than reinforcing unconscious biases or factional agendas.
• A board that can have a robust discussion in private but show a collegiate and united front once a collective decision has been made.
• A board renewal process that transparently identifies real skill gaps, and includes consideration of all candidates, actively seeking to eliminate biases. This requires directors to give honest assessments about the skills the organisation needs and whether they – or someone else – is best placed to provide them (i.e. it requires directors to be focused on the needs of the organisation rather than being self-serving).
• A board that can ask itself and honestly answer, “do we have the right skills and mix of thinking to respond to the range of societal, environmental, technological, geopolitical and economic challenges that our organisation is facing – or is likely to face?”

The key to good diversity is getting the mix right to achieve a shared purpose – overcoming biases and assumptions – and then, how that mix is managed (which requires a chair who is adept at facilitating open and robust discussion). Boards don’t make a huge number of key decisions but the ones they do make need to consider the breadth of challenges and opportunities faced by the business. A well-facilitated decision-making process that respects individual perspectives, appreciates individuals for their unique contributions, allows for rich discussion and has a tolerance (and lack of fear) of new or ‘different’ ideas will then lead to sustainable and positive outcomes…

… a little like society in general.

Footnote

130% Club, Barriers to Progression, The reasons Chairs and Non-Executive Directors (NEDs) use as to why they can’t or won’t appoint female directors to their boards

First published on kpmg.com.au on 13 January 2017.

For more on the Board of Tomorrow.