What Does Diversity Mean on Your Board?

Diversity has several dimensions, so the way in which your board thinks about diversity matters. It can mean distinctions in the composition of directors by gender, race, age, skills, expertise, geography, culture, experience, and – from our research – most significantly diversity of thought. By this, we mean robust diversity in members’ orientations to problem-solving.

The focus on regulatory requirements for diversity on corporate boards continues globally, with the most attention to the issue of board diversity on gender and race, despite select legal challenges on the move from principle-based push to policy-based mandates. For example, Malaysia adopted reforms in 2017 requiring large companies to have at least 30% of native Malaysian women directors on their boards and to disclose their diversity policy, target and measures adopted to reach the targets. Large companies were defined as those on the FTSA Bursa Malaysia Top 100 Index or companies with market capitalization of RM2billion or more at the start of the company’s financial year. While no sanctions were prescribed for failure to comply, the Prime Minister then warned that companies failing to comply by 2018 would be named and shamed. The Securities Commission (SC) publishes statistics showing these reforms have led to an increase in women representation on the top Malaysian publicly listed company from 16.6 percent to 23.7 in two years. Compared to other countries, female representation in Malaysia is higher than that in Singapore and Hong Kong, but lower than that is the UK and Australia.

In the U.S., the latest news comes from Hawaii, with a law under consideration which would require all companies located in the state to have a minimum of one female or non-binary director and one male or non-binary director before end of 2023. Further, the requirement will expand to three of each category by 2025. The consideration here is about “balance” of men and women. Violations of this law would include fines of $5000 a year and $500 for failure to submit the required diversity reporting to the state. In comparison, the legal mandates in California for board seats for women and underrepresented communities have been stymied after court rulings struck them down. As well, the SEC is challenged with litigation related to similar rules for companies listed on NASDAQ.

The research on the positive impact of diversity on boards both expands and shows it comes from more than just gender balance. Diversity of thought, orientations and styles of problem-solving correlate highly with ideation, quality decision-making and corporate performance metrics.

At Boardwise, we research five key styles to ensure boards have diversity of thought at the table. We provide an online diagnostic to help identify the styles of each director and how these styles contribute to board quality.

Crafting the Best Diversity for Your Board

It’s time for boards to reframe their vision for board composition.

Step One: Understand the potential of diversity.
Step Two: Clarify the direction and needs to reach organizational goals.
Step Three: Define what mix of diversity will optimize your board’s performance.
Step Four: Describe the combination of factors that describe the ideal candidates for your specific board situation: What robust mix of skills, experience, perspectives and styles of thinking will create the most high-performing board?
Step Five: Understand how competent your board and executive team is in inclusion. It is one thing to create diversity. It can be another thing if a group is not skilled in appreciating it. Inclusion is a skill. If needed, train and build this skill.
Step Six: Collaborate and align the board and executive management on a culture that understands the value of diversity and the leverage it provides for long-term success.

Refinement in board composition is both growing and becoming more thoughtful. We provide board committees with assessment and profiling to help with crafting the ideal board composition.