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Men in Suits
  • Directors' Institute

Diversity on boards extends beyond gender

When we don't comprehend the depth of the term, board diversity can be misconstrued or restricted. This guide will assist you.

It is critical to remember that "boardroom diversity" is a moving target. You can't just define it, do it, check the box, and move on.

Instead, it is a fluid idea that evolves with firms' changing requirements and their aim to serve all stakeholders, not just investors.

It is critical to recognize this now since boardroom diversity is a heated topic that is only getting hotter. If you define it too narrowly, you might not set the correct goals.



What board diversity does not entail


It is not only a headcount based on gender or race. These elements are frequently included in boardroom diversity targets, although they rarely define a company's diversity performance independently.

Politicians and the media frequently shape the word "diversity" in our minds, and that connotation barely scratches the surface of the issue. We must think bigger.


What constitutes true boardroom diversity?


There is no single accurate answer because the concept is developing.

Definitions generally emphasize diverse origins, related beliefs, and a company's desire to accept it all.

Here are some of the usual components that organizations look at when attempting to increase boardroom diversity:


Skills

Boards are intended to be a gathering of knowledgeable, talented professionals. But, something must be done if the entire board is just skilled in one area.

The variety of skill sets should stand out.

Some skill sets are in high demand, such as financial knowledge and sales experience. Yet, other skill sets, such as HR and digital transformation, are in high demand. They reflect the changing nature of business, as well as the demand for improved employee welfare and cyber defenses.


Gender

For good reason, focusing on gender is common in the business sector.

Boards are becoming less male-dominated, and the number of women with seats is increasing as a result.

This shift is frequently prompted (or at least facilitated) by new laws mandating that women occupy a certain number of board seats.

In the EU, for example, a recently implemented law requires women to hold 40% of NED (non-executive director) posts and 33% of all director roles by 2026.

But keep in mind that the law isn't - and should never be - the only motive. Businesses are beginning to recognize that expanding the number of women on boards provides critical perspectives and ideas, as well as a more realistic representation of stakeholders.


Ethnicity

Companies are increasingly operating in multicultural cultures, interacting with people from diverse origins. As a result, ethnicity is a common factor in board diversity.

The logic is essentially the same as with gender. Boards with a diverse ethnic mix better represent the stakeholders with whom they work.


Age

It's sometimes overlooked, but age can be significant for boards.

Boards typically select older candidates to fill positions. They do this because their natural predisposition leads them to do so. They want greater experience and a longer track record, thus they prefer more senior candidates.

Companies, on the other hand, are challenging the "universal benefits" of this style of thinking. In actuality, many organizations would profit from hiring employees with the most appropriate skill set, even if they are in their 30s rather than their 60s.

It is also possible that the younger candidate has newer ideas and more enthusiasm than their older colleagues, which is advantageous in many teams.


Independence

How many independent or non-executive directors (NEDs) does your company have? Is there any at all?

A healthy board requires these types of directors.

Because they are not involved in day-to-day operations, NEDs/independent directors have a distinct, unbiased perspective, which is ideal for providing impartial advice and scrutinizing fellow board members.

When it comes to diversity, independence is a key priority. Businesses will frequently wish to ensure that their board includes an appropriate mix of executive and non-executive voices.


To summarize, diversity in the boardroom is a moving target.

Many people will hear the term and immediately start calculating the number of women on boards. While gender is crucial, the bigger picture includes more.

What matters is that your board is aligned with your company's and shareholders' ideals. This entails taking into account all of the factors listed above.


Our Directors’ Institute- World council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out in an efficient manner helping you to make a significant contribution to the board and raise corporate governance standards within the organization.


Our ESG Expert certification will help you to amplify your understanding of corporate governance in a detailed manner paving a way for you to become a globally recognized ESG leader.

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