The nature of globalization has lead to a shift in workforce demographics that is making business more complex and is requiring boards to broaden their composition of its membership. Every corporation is different, but in general, the composition of a board is about creating a dynamic and harmonious marriage of individuals from all walks of life brought to effectively execute corporate governance and engage in strategic overnight.
The board’s primary responsibilities can vary, yet typically include identifying and evaluating significant opportunities and risks, serving as informed counsel for major strategic decisions and assessing the CEO’s performance. Executing these changes requires two general conditions: (1) individuals who are experienced, responsible and collaborative and (2) an environment in which challenging issues can be confronted, opposing opinions are sought and trust is implicit.
The trend toward diversity is essential as boards look to navigate the complex and dynamic issues that companies now face. Boards become greater advocates for diversity as they have more direct beneficial experiences with it. Having multiple views on the possible outcomes of any action makes for a decision-making process that is more likely to take into account the various risks, consequences and implications of possible actions.
A board needs to take into consideration all of its constituencies. While no one disputes that a board’s first responsibility is to the company’s shareholders, those shareholders suffer without the support of customers and employees. A diverse board allows for the group to better anticipate and consider the concerns and perspectives of all key constituencies. Being able to draw upon a diverse set of competencies and knowledge is essential if boards are to successfully address the complex issues their companies face.
A board needs to draw upon a range of experiences in understanding opportunities, anticipating challenges and assessing risks. Rarely does a right or wrong answer exist for the many issues a board faces—particularly in an environment where silos defining industries are breaking down, constituencies are globalizing, the effects of technology are accelerating and risk presents itself in new ways. With these lines blurring, having multiple views on the possible outcomes of an action results in a more thoughtful decision-making process.
Women are increasingly making their way into the boardroom, in part because of the greater number of women in the C-suite who make up the pool of eligible candidates. As important, heightened awareness during the past decade of the pitfalls of homogeneity has contributed to more women in the boardroom. There is still a long way to go, but corporations are having discussions about diversity and gender. Gender, however, is only one of many attributes that contribute to the perspective that a director brings to the boardroom: experiential (industry experience, education etc), demographic (gender, race, region, generation), and personal (interests and values) attributes should be considered to take a more holistic, multidimensional view of diversity. These perspectives, in turn, shape the competencies an executive develops, the priorities that guide his or her work, and the insights that he or she generates in solving problems, identifying opportunities and assessing risks.
This multidimensional model provides a starting point that allows board members to more consciously shape and optimize the collective skills and dynamics of the board by identifying the full range of variables to be considered.
A board composed of directors representing a range of perspectives leads to an environment of collaborative tension that is the essence of good governance. In a room where everyone has different points of view and there is a greater opportunity for cross-pollination of ideas, there are fewer unspoken assumptions, less “group think” and a greater likelihood of innovation. This allows the board to ask the probing questions and tackle the challenging issues, such as risk management and succession planning, which are at the center of good corporate governance.