Recruiting the high-performance board - 22nd May 2013

By Ian Taylor

Discussions outside the boardroom in recent months have flagged a perceived problem in a lack of diversity on boards – or more particularly, of women on boards.

As this conversation has evolved globally, some European countries have moved to legislated quotas to raise the proportion of women on boards.

A variety of studies demonstrate that a “diverse” board is higher performing. The UK’s Davies Report, released in 2011, is one of the more recent and amalgamates much of the research into the topic over the past five years. Lord Davies was commissioned by the UK Government to identify the barriers preventing more women reaching the boardroom, and to make recommendations regarding what government and businesses could do to increase the proportion of women on boards. This report has preceded the formation in the UK of the 30 Percent Club, with a goal to achieve 30% female representation on boards.

In New Zealand, a similar group launched last year, known as the 25 Percent Group, whose members are directors and chief executives committed to achieving a target of board representation of 25% women.

There has been some suggestion that executive search firms are major barriers to achieving greater diversity on boards. Both the 30 Percent Club and the 25 Percent Group have developed voluntary codes of practice for executive search firms that recommend ‘best practice’ search processes that they consider will enhance the progress of women onto boards.

While this move is a constructive one, we suggest that the problem is more systemic.

Sheffield has no difficulty in endorsing the code. We follow all of the guidelines, and this has been so over more than two decades in which we have been involved in the selection of non-executive directors. Our statistics show that we have placed on average 25% of women onto boards over the past decade, and in some years the ratio has been up to 55%. We do not take credit for that – we work with clients who recognise that diversity is an important issue. Ultimately, the client is the decision maker. Professional advice is just that. Its acceptance or rejection is at the behest of the quality of judgement that comprises the board.

We also suggest that the current diversity discussion, in focusing solely on women, is simply too narrow. In New Zealand, ethnic diversity can be an equally important consideration. Age is also relevant.

The most accomplished boards reflect stakeholder interests in how and who they recruit into their ranks. An external consultant’s role in the process is to test the validity of the client’s brief and to put forward a board composition strategy that takes into account the most appropriate skills and competencies, experience, organisational ‘fit’ and the market profile of the business. A full spectrum of diversity considerations should take place within this context and analysis.

One Sheffield client wanted to source a new board member who could contribute knowledge of, and a connection with, a younger segment of its market. The result of that search was the appointment of two younger senior executives who had strong market experience, but were weaker in governance skills.

Some boards consider professional development to be a director’s personal responsibility; in this case the board committed to developing the governance skills of its new members to gain a market edge based on a better read of its diverse market demographic. This was then diversity in action, supporting a smart business strategy. The board’s willingness to support development was also an important quality to note, enabling the diversity imbalance to be addressed to boost the relevance of board composition.

The relevance of diversity needs to be considered in the context of organisation structures generally. As McKinsey notes in its most recent update of its ‘Women Matter’ research, one of the most important contributors to a greater number of women on boards is having greater numbers of women in the senior executive ranks. This occurs when companies make diversity a strategic priority. Yet only 28% of the McKinsey research respondents considered it a top 10 priority.

Another solution lies in time, or more precisely length of tenure. Boards take time to turn over. Typically an appointment is for 3-4 years and in practice most directors are on boards for 6-9 years. So a board does not roll over its full complement very quickly; arguably for business continuity, it should not.

Board composition and the process to achieve it is a balancing act between the needs of the business, and the broader economic environment. In times of fiscal constraint, more boards in our experience are relying on their own resources to identify and recruit new members. This runs the risk of boards perpetuating themselves in terms of a similar demographic background. Can the resources of those self perpetuating boards really hope to evolve the knowledge, skills and experience to match the aspirations of their fast-changing stakeholder communities? Can refreshment, innovation and the testing of boundaries of business possibilities be achieved by asking round the board table “who do we know?”.

Client insight, candidate readiness and an effective director search process all play a part in ensuring that not only diversity, but wider strategic and commercial ambitions are achieved

Ian Taylor is an Executive Director of Sheffield 

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