New research into the potential of leading FTSE boards by Professors Andrew and Nada Kakabadse of Henley Business School has found that diversity is vital to top team effectiveness.
Nada Kakabadse, Professor of Policy, Governance and Ethics and whose past consultancy clients have included Citigroup, Microsoft, and Vodafone Australia, explains: “Effective boards should be diverse in terms of their directors’ age, education and function, and they should include individuals who are analytical and can demonstrate a deep understanding of markets and people.
Andrew Kakabadse, Professor of Governance and Leadership and currently leading a major £2 million global study of boardroom effectiveness and governance practice, adds: “Most significantly, we’ve uncovered that the difference between giving the appearance of possessing board diversity, and having actual substantive board policies and practise in place, can be vast.
As a result of their ongoing work, the professors recommend a three-step process to achieve success:
1. Audit your board’s skills
An audit will take into account the primary roles expected of individual board members. These may be engaging with stakeholders, providing resources, or guiding and helping formulate strategy for a future expansion of operations.
This audit can be initiated or conducted by the Chair using periodical evaluation. This will identify board strengths and weaknesses, whether they involve dynamics, deliberations or are crafted by design. The results will highlight not only any potential skills deficits, but also other stumbling blocks to effectiveness, such as conflicts of ego, groupthink, and grievances harboured by directors who feel they are not being heard.
2. Allocate director roles to match needs
Once this is achieved the Chair should ensure that board members’ diverse skills match organisational requirements. Our research suggests that directors with specific experiences are most effective in meeting the different role-requirement of boards. In addition, the need to communicate positive signals to current and future employees, government agencies and customers can be met by appointing a gender-balanced board.
3. Take an approach that ensures diversity
Having conducted a sound skills audit acknowledging the diverse characteristics required across boards, the Chair can facilitate an objective and professionally-run board appointment process.
This should be free from the undue influence of any single individual, such as the CEO, whose overwhelming influence can often be difficult to resist. A professional board search agency will explore widely before recommending eligible candidates, and will also avoid any conflicts of interest.
This is where the diversity of candidates comes to the fore. For example, boards who need to guide the executive on strategy-formulation or expansion into new territories can benefit from a directors’ experience of working and living in different countries. If there is a struggle to instil discipline and a need to hone people management skills then appointing directors with a background in the armed forces can reap dividends.
Andrew continues: “Our study further illustrates how ensuring the inclusion of directors from diverse national and professional backgrounds can send a positive message to investors and reassure them that merit is respected and their investments are in capable hands.
“The ideal board should be made up of between 30-40% women and welcome directors from backgrounds in areas as diverse as IT, venture capital and the creative industries with significant differences in ethnicity, age, education and social circumstances.
“Our review also calls for board directors, essentially the top echelons of businesses, to exercise discretion on the basis of their invaluable experience. A room full of diverse know-how means different perspectives have been brought together for a reason.
“This broad range of views and opinions helps eliminate groupthink and delivers a balanced risk of approach and appetite. In other words diversity demands that boards perform their role more effectively.”