Putting more women on your board won’t automatically make your company perform better

Written by Vernon Cheung

Oct 19, 2015

By Margaret Kett 

Diverse companies outperform their peers, but we may be confusing correlation with causation.

Diverse companies are more successful – and there’s plenty of evidence to support what is becoming an increasingly accepted fact in business.

Companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above the national industry average, according to a McKinsey report released earlier this year. Companies in the top quartile for gender diversity are 15% more likely to outperform their industry peers.

The received wisdom seems to be that it’s is good for business. But are we looking at the issue the wrong way around? Could it not be that a company culture that fosters diversity is also the reason why a company performs better? Innovative, forward-thinking companies are more likely to be receptive to new ideas – such as taking active steps to hire more female directors. It’s not a stretch to think that these are also the sorts of businesses that achieve better results.

It’s been more than four years now since the launch of the Davies Report dealing with the under-representation of women at the top of business. Its main starting point was increasing the number of women – primarily non-executives – in the boardroom. But it’s time this focus on diversity is addressed from an entirely new perspective, with sound commercial goals in mind.

Ultimately, a board having a balance of men and women does not automatically mean that it demonstrates diversity of thought. Women at the helm can just as easily suffer from groupthink. Diversity of thought and innovation need to be embedded in an organisation’s culture.

The crucial point is that if an organisation does not naturally embrace the concept of diversity, it is probably closed to other, wider commercial opportunities as well. Those companies that are conforming for the sake of conforming are unlikely to reap any advantage from a more diverse boardroom – they may well simply revert to type, with all the major decisions being taken behind closed doors.

Unless diversity of ideas is embraced in all aspects of the company’s activities, merely hiring more women, or ethnic minorities, or people with disabilities, will turn out to be frustrating for all involved, including those you hire. Companies that don’t experience an improvement in performance after improving boardroom diversity may well lack the motivation to push through more changes. Diversity initiatives are more likely to fail and the cause will be set back.

So with many organisations glorying in an orgy of self-congratulation over achieving some arbitrary target, it’s little wonder we seem to have hit a wall. The figures seem to speak for themselves. The bi-annual FT-ICSA Boardroom Bellwether found that 31% of businesses think they will not meet the target set by Lord Davies, of a quarter of board members being women by the end of this year.  In fact 63% of those companies said they are not expecting to hit the target and have no plans to do so in the short, medium or long-term.

This lack of progress indicates that it is time to re-address how organisations approach diversity. We need to recognise that it goes way beyond hiring a handful of female executives – there needs to be cultural change at all levels. Only then will companies gain that competitive edge that comes from true diversity of thought. And only then will the question of women on boards become a non-issue.

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