Board Consulting

Fundamental to the effectiveness of any board of directors is the requirement to ensure that it has the breadth of perspectives and experience which will lead it to make the best decisions possible for the company it governs. Thus, as the organization and the environment within which it operates change, so too will the ideal board composition.

There is a growing body of international evidence, including a recent study entitled Diversity on Boards of Directors published by the Australian Government’s Corporations and Markets Advisory Committee, encouraging boards and shareholders, in their own interest, to give full consideration to issues of diversity in board composition.

The report focuses on the key issue of gender diversity, but also notes that age, ethnicity, socio-economic or cultural background, formal qualifications, technical skills and expertise may be lacking on boards. Part of the problem, argues the report, is a lack of open-mindedness on the part of board members and their advisors when it comes to identifying potential directors.

Diversity drives effectiveness

My strong belief is that the best collective decisions, such as those made by a board, are a product of disagreement and contest, not consensus or compromise. Therefore diversity, collaboration and independence are critical if a board is to be effective. The evidence is clear that homogeneous groups tend to become progressively less able to investigate alternatives and spend too much time exploiting their knowledge, rather than exploring any learning. They are likely victims of “group think.”

But, while diversity and independence should lead to more effectiveness, the caveat is that the diversity must be relevant. It is of no value to either the board or to the individual if potential board members, whether they be men or women, have such a lack of relevant experience that they are unable to engage fully in board room discussions where the business is complex beyond their experience and where their contribution will be, at best, marginal.

Striking a better gender balance

According to Avivah Wittenberg-Cox, a world expert on gender diversity, the boardroom focus has been helpful in raising the visibility of the gender issue, but it does not really indicate how gender balanced a company is at present or will be in the future.

It is time to move on. We need to go deeper into the gender issue in leadership if real progress is to be made. We have to acknowledge that board members are hard to find, women even harder than men, due to the simple fact that women are underrepresented in the upper ranks. This is due to the historic inability to date of most significant corporations and leading professional firms to facilitate the advancement to their senior levels of women and members of other minority groups.

Board diversity is just one of several factors that shape board effectiveness. In the end, diversity, not only gender diversity, is a challenge both for the society and the corporate world. Effective contributions as a non-executive director are based on relevant executive or advisory experience and wisdom gained over many, many years. This holds true for all members – regardless of their gender – on more diverse and effective boards.

This is an amended version of two articles originally published in the Australian Financial Review ("Boardroom bias an urban myth" and "Women directors must be relevant to business"). It is reprinted here with the kind permission of the publisher.