Diversifying boards – three challenges facing leaders

Despite the well-documented advantages of having a diverse range of voices and perspectives, many organisations still struggle to achieve gender equity and inclusion in their boardrooms. There are three key challenges that many leaders face when trying to diversify their boards. They are important to understand and address if more diversity initiatives are to be genuinely successful.

1. Critical Mass

The first of these is the concept of critical mass. This is the argument that due to their otherwise token status, women can most likely make a meaningful contribution to boards when they represent a critical mass. The thinking being that once women represent 3 out of a 10-person board, later operationalised as 30%, they can shape the board process, bring different perspectives and raise issues relevant to multiple stakeholders. For example, the 30% Club works globally to encourage firms to reach the 30% mass target without waiting for legislation to enforce this.

Despite the obvious appeal of a simple numerical target, there are still problems with this approach. The interchangeable use of ‘30% and three women’ has resulted in some boards claiming that they have reached critical mass when in fact they have only two women. For example, a board comprising seven directors can argue that they have reached critical mass with the appointment of two women, since 30% would mean 2.1 women, a target that is impossible to achieve. In this example, two women are likely to suffer from an out-group bias and have fewer opportunities to shape board processes.

It means that firms can separate the policy of critical mass but remain compliant in practice, but certainly not in spirit. Some countries have sought to address this problem. Norway for example specifies exactly how many of each gender must be represented on different board sizes.

A deeper issue has emerged as the debate on board diversity has broadened to include other forms in particular ethnic diversity (the only other demographic characteristic to be associated with a target in the UK). In the UK, the Parker Review stipulated that by 2021, there should be at least one ethnic minority represented across all UK FTSE boards, a target that was largely met. However, implied in this target is not only an acceptance of a tokenistic approach to ethnic diversity but an institutional framework for legitimising it. According to the most recent estimate from the Office of National Statistics, 15.2% of the UK population identifies as non- white. Across a board of seven, one ethnic minority director represents just over 14% of the board, approximately the same proportion found in the population of the UK. This then begs the question, should corporate board practice be informed by representation or integration? From a representation perspective, one ethnic minority across UK boards would fulfil the criteria, but 30% for women would not, since women represent approximately 50% of the population and 48% of the working population.

One idea is that a board needs 30% of ‘difference’ to interrupt the negative dynamics of a more homogenous team. As the board diversity debate expands to encompass aspects beyond demographic characteristics, these issues will be the ones that boards are expected to address. For example, board cognitive diversity is increasingly important. This brings us onto the second challenge.

1. 2. Cognitive Diversity

While much of the literature on the benefit of board gender diversity assumes that it will increase cognitive diversity, cognitive diversity and demographic diversity are distinct. Demographic diversity can be defined by varying descriptive labels such as age, gender, ethnicity, and culture, while cognitive diversity refers to differences in perspective, information processing style, and problem-solving approach. Having more women on boards may not necessarily guarantee cognitive diversity.

For example, when women first entered boardrooms, it was often the case that they came from the same educational (e.g., private education and elite university) and career (e.g., large city firms) backgrounds as men on the boards, as this was the only way they would be considered sufficiently legitimate. Whilst they may hold different insights and experiences of differing gender whether these differences were shared and heard was often a function of other factors, such as numerical representation, status, inclusive culture and the board’s leadership.
While various research suggests that there are meaningful benefits to incorporating cognitively diverse perspectives in teams, introducing change to homogenous groups is never easy for either the incumbent or new members. It can lead to increased conflict, slower (albeit better) decision-making, and impeded shorthand discussion. If firms are serious about benefitting from cognitive diversity, they need to overcome what may be discomfort around managing different perspectives, genuine debate, including constructive dissent, for the good of the firm.

So a leader’s role in strategically pursuing cognitive diversity, is not just to bring the diversity into the boardroom, but also to ensure that it is expressed in both terms of resource and process.

3. Backlash

The last challenge and cautionary note regards how boards respond to popular social movements, such as #MeToo and #BlackLivesMatter. Following the death of George Floyd in the USA in May 2020 and the huge outcry around the world, many organisations put out diversity statements of support. However, ‘brand activism’ has to be matched by authentic action.

Companies face a backlash if their actions do not match their words. For example, Nike initially benefitted from supporting a Black American footballer who was fired for ‘taking the knee’ but were later castigated for having low representation of Black or minority ethnic senior leaders. Similarly, Amazon and Airbnb leaders published #BlackLivesMatter statements, but Amazon was then criticised for working closely with the police in America and Airbnb for gentrifying previously Black areas, pushing out residents.

Whereas ten years ago corporate diversity statements were considered progressive, today without actions or figures to match they are seen as unacceptable lip service, particularly with regards to a lack of boardroom gender diversity.

Often with a focus purely on diversity headcounts, without the requisite consideration of processes and culture that lead to inclusion, business leaders will be find that their ‘add diversity and stir’ approach is unlikely to lead to any obvious and immediate gains. This may then lead to a withdrawal of organisational support for their efforts.

The future?

Whilst many leaders are motivated to diversify their boards, they are less confident about how to do it successfully.  In fully diversifying their boards, they need to move beyond a tactical approach of compliance to one of strategic inclusivity, aiming for true cognitive (as opposed to just categorical) diversity, proactively seeking and managing diverse skills, characteristics and experiences. It is by doing this, that truly diverse boards will be achieved and realise the benefits both for the  organisation and beyond.