Board Diversity in Corporate Organisations

Board Members

Redefining board diversity in terms of culture, gender and other indices has been a subject that has garnered a lot of attention in recent times. This is expected as the board of directors is the singular most important decision-making organ of any corporation, crucial to the performance and survival of the company.

Therefore, the composition of boards is the first step towards ensuring that companies (especially public companies) are thrust in the right direction in terms of management, shareholder and stakeholder value.

In the past, it was logical to have reputable, reliable and like-minded people serve on the board as such a constituted board, would have the confidence of the shareholders in their abilities and capacity to manage the company in their best interest. However, globalisation and the complexity of business relationships have revealed the shortcomings of this board-building strategy and have brought to the fore, the need to broaden the composition of boards.

However, diversity for its own sake falls short of both the need and the opportunity. An evolution is under way, and boards are now beginning to realise that it is the breadth of perspective, not the mere inclusion of various diverse traits, that benefits the organisation. Diversity (in terms of age, ethnicity, experience and gender) must now be defined not only in terms of the identity of the directors but more importantly, in the diverse perspectives that each director can bring to add value and impact on company performance.

The Securities and Exchange Commission (SEC) in its Corporate Governance Code stipulated that the criteria for the selection of directors of public quoted companies in Nigeria should reflect the existing board’s strengths and weaknesses, required skill and experience, its current age range, and gender composition. This need for diversity has also been articulated in the provision for independent directors. Similarly, the UK Corporate Governance Code 2014 affirms that: one of the ways in which constructive debate can be encouraged is through having sufficient diversity on the board. This includes, but is not limited to gender and race. Diversity is as much about differences of approach and experience, and it is very important in ensuring effective engagement with key stakeholders and in order to deliver the business strategy.

It has been noted that for companies with more complex operations, board heterogeneity has a positive impact on performance. This is in terms of age, experience as well as foreign representation particularly for companies with wide international network operations. Some research also shows that ethnic consideration on boards of directors would be beneficial to organisation in terms of gaining critical resources and where corporate governance is concerned, benefits at strategic level are positively related to diverse top management.

Another resonant issue is that of gender diversity in board composition. Whilst this advocacy has been somewhat biased in favour of women (usually because of the general propensity for the selection of men on boards), both genders should be represented on boards to reach a balance vis-à-vis the needs of the company. Guidelines or a ‘comply or explain’ approach are important to ensure that the appointment of women (who are now playing catch-up to the men) on corporate boards does not amount to tokenism or ‘window dressing’ where women are not selected based on their experience, competence and integrity but merely to counteract gender imbalance.

It is important that all the indices of board diversity, including gender, is recognised and implemented by companies for their performance and value

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