Diversity

12th November 2010

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n. 1 the state or quality of being different or varied. 2 a point of difference (1) 

In a call for greater diversity around the board tables of UK corporates, the UK Corporate Governance Code( 2)  refers in main principle B1 to a board of directors having an “appropriate balance of skills, experience, independence and knowledge of the company”. This is a deliberate change to the previous ‘Combined Code’ (3) which only referred to the executive/non-executive balance; although the 2010 code still recommends that for FTSE 350 companies at least half of the board “should comprise non-executive directors determined by the board to be independent ”(4).

The deliberations and recommendations of the FRC in this area of governance are an attempt to encourage a renewed and increased diversity of people serving, and offering to serve, as directors of listed companies. Remember that directors are appointed by shareholders, so there must be some measure of responsibility laid at their door, although, perhaps surprisingly there is no specific reference to this responsibility in the new Stewardship Code (5).

What then are we looking for? The political take on this across Europe, and endemic within all of the UK parties, is gender based. During the election campaign earlier this year David Cameron suggested that half of the candidates on long lists for directorships would have to be women, and that he would expect annual report explanations from companies whose board contained fewer than 30 per cent women. Vince Cable is known to be highly supportive of this approach, and currently Lord Davies is leading an inquiry into why so few women make it to board level.

I am strongly supportive of more women being appointed as directors to our organisations but is positive discrimination really the answer to our urgent need for more diverse boards of directors? If so, why only 30% when in some cases 100% might be more justifiable; and for that matter why stop with gender, we might equally suggest that boards have a relevant percentage of directors reflecting religious beliefs, ethnicity, sexual-orientation, disabilities, hair colour, eye colour, height........ Where would it stop?

This type of discrimination will not deliver the diversity we need around the board table.

The current draft of the new ‘Improving Board Effectiveness’ (6) document states, in section 10.3 “Diversity of psychological type is important, requiring board directors who have the intellectual capability to listen carefully”. This seems to me to get closer to the real requirement. What we must expect, and what we need from the directors of any organisation is the ability to stop, to listen, to consider and to then be prepared to challenge, based upon their own life-experience and their own ethical-perspective. 

This gets to the heart of effective governance. As human beings we develop uniqueness from many dimensions through our individual process of maturing. We are not created as clones, and we should not look to recruit clones around the board table. A really powerful and effective board needs the balance referred to by the FRC, but more importantly needs intelligent listeners, determined challengers and lateral thinkers.

Look around the people at your next meeting. How well does your board encompass diversity?
 

Mark Wearden FCCA FCIS is an independent business and strategy consultant. In addition to a wide range of workshops, lecturing, and client-focused consultancy in the corporate and NHS sectors, Mark undertakes part-time focused business assignments, the latest of which is as Head of Governance for Capita Registrars.
 

(1) Collins Dictionary
(2) Financial Reporting Council (FRC) June 2010 
(3) FRC June 2008 Main Principle A.3
(4) UK Corporate Governance Code Provision B.1.2
(5) FRC July 2010 
(6) ICSA / FRC July 2010 Second Stage Consultation document – final document due December 2010 
 

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