It's not just a numbers game: How boards should approach diversity

Cristian Ulloa photo
Cristian Ulloa
BDO Advisory Partner

    Diversity: It's a word that's on everyone's lips at the moment. From the smallest startup to the largest corporation, businesses are looking to improve the demographics of their workforce in order to better align with the world around them. However, true diversity remains elusive.

    Only 15.4 per cent of Australian CEOs are women, while some ASX 200 companies don't have a woman on their board at all, Australia's Workplace Gender Equality Agency reports. The story is much the same for the ethnic makeup of organisations.

    Diversity of capabilities

    The need to cite statistics such as these perhaps highlights the fundamental problem in the way boards and companies as a whole are approaching the issue. Businesses often approach the issue from a numbers point of view. For example, how many companies set themselves diversity targets, whereby they hope to have a certain number of females or ethnic minorities on their board or in their wider company by a certain year?

    Rather than looking at diversity narrowly, we should also start looking at capabilities, particularly from a workforce planning point of view. First and foremost, we must ask ourselves what particular skillset does the business or board need to operate effectively and achieve its goals? What capabilities are required now and in the future?

    This should involve thinking outside the box. Softer skills and emotional intelligence are just as important as expert knowledge, particularly in this age of disruption when it's essential that businesses have sufficient creativity and innovation to respond - and ultimately survive.

    The boards of credit unions and mutuals in Australia, for example, have increased the levels of diversity at the board level – some ‘kicking and screaming’ in part to ensure future sustainability and relevance to their member base. Historically, boards within the credit union and mutuals sector have been male dominated domains. Now, many have moved to complementary skillsets through increased diversity and skills outside their own sector.

    There has been a noticeable push to bring in people who can think differently and approach problems in new ways. Most of the larger mutuals have at least two female board members. Whilst the balance is still in favour of male representation, one particular mutual has almost achieved balance with four female directors on the board. Whilst the gender balance has improved, it is the diversity of skills and capabilities that is having the desired impact.

    The benefits of the capabilities approach

    Adopting this capabilities approach means companies can finally align diversity with their business goals. No longer are they simply meeting diversity targets because they feel they have to. Instead, the effects of diversity initiatives will directly impact the business in a very tangible way.

    Many companies in Australia, for example, are now exploring opportunities in China. BDO has been doing a lot of work helping businesses begin this process, and one of the main things we've benefitted from is hiring people with a depth of experience and a clear understanding of how to do business in China. They tend to have a better knowledge of the new environment and are much more culturally aware, all invaluable capabilities when it comes to expanding into a new market. Our firm’s China Advisory Services has been very successflul in helping organisations expand into the region, working closely with a number of Australian organisations, most notebaly Buderim Ginger and Bubs Australia.

    The Femeconomy group is an interesting case in point when it comes to the benefits of diversity. To join this group, a company must be able to show it has a clear commitment to diversity, including a significant number of females on its board - at least 30% female representation. While the group sets this target, the benefits of joining Femeconomy are also clearly aligned to business goals. The group advocates for increased and meaningful female leadership within boards and links this with increased purchasing power, meaning they aren't just committing to diversity for the sake of it, but because they actually get something in return.

    In a world where disruption is the norm, businesses will only survive if they can innovate. Like-mindedness does not produce innovation - diversity does. By aligning diversity initiatives to business goals through recruiting for capabilities rather than gender or ethnicity, companies are much more likely to achieve true diversity, and see success as a result.

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