EY - Time for diversity

Time for diversity

Accelerating performance in corporate boardrooms

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Boards that want to see optimum performance need to recognize the value in diversity and take action now.

We examine how boards can capitalize on diversity to improve their own performance, particularly with regard to managing risk, while they prepare for the possible introduction of quotas at the same time. For this report, board chairs and non-executives from Europe and other regions shared their views on this important topic.

The business case for accelerating diversity

Besides gender, diversity is about embracing numerous other factors, such as differences in age, background, ethnicity, nationality, professional experience and training, among others.

To perform at the highest level, boards need to draw on the skills and experiences of a very broad range of people. They must be proactive in seeking out non-executive directors with the right mix of backgrounds and capabilities, and then empower and advance them. This applies equally to newly listed companies and those that have been public for a long time.

Risk management is not the only area where diversity improves board performance. Since most companies have a broad and increasingly international customer base, they need a spectrum of board members who can relate to those customers.

Many of the board members we spoke to noted that the significance of diversity differs in rapid-growth markets compared with more established markets. This is an important consideration for European companies with subsidiaries in high-growth markets.

The evidence shows that there is a powerful business case for accelerating diversity on boards. Furthermore, fast-forwarding the professional advancement of women, and empowering them to succeed, is a critical part of that acceleration process.

What do women bring to the table?

While our research found that it is diversity in its broadest sense that drives board performance, gender diversity is a crucial component and therefore warrants special attention.

EY Percentage of female board directors by EU nation

Women make up half the world’s population, yet they held just 11% of corporate board positions in 2013. According to the executives and directors who participated in our research, women tend to have certain qualities and characteristics that can enhance the performance of the boards that they sit on. They have strong listening skills, greater empathy and patience, and a willingness to understand the perspective of others when making decisions. They are inclined to take a longer-term view of the business and show an interest in issues such as sustainability and talent development.

Our study also found that female non-executives often act as role models. Their presence on the board, together with their collaborative approach to decision-making, can give confidence to both the female executives and the workforce more broadly, thus enhancing company performance.

 

 

The role of the board chair

The chair plays a critical role in ensuring that the board capitalizes on its diversity to perform at the highest level. Our participants thought that chairs should be committed to accelerating diversity and be able to facilitate open discussions, ensuring that all board members’ views are heard and valued. They must know the non-executive directors individually and have an awareness of their specialist knowledge.

Board chairs need to take a long-term approach to succession by planning for vacancies before they arise. They also need to challenge the company on its talent pipeline to make sure that a diverse range of people are being nurtured for future leadership roles and that capable women are being fast-forwarded where appropriate.

Our diversity action list for board chairs

  • Set the right tone at the top by creating a boardroom environment where different perspectives are encouraged and valued. Ensure that all board members understand the business case for accelerating diversity.
  • Start preparing for the introduction of quotas now to avoid a skills shortage later. Companies in male-dominated industries and those with a background in private equity will need to put in extra effort immediately.
  • Take caution from Norway’s example — women should avoid leaving line-management positions early to join boards. It can be counterproductive in the long run if board candidates leave their jobs before they reach their potential.
  • Broaden board recruitment processes to include entrepreneurs and individuals who have board experience not necessarily acquired with listed companies.

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