Investments funds are putting pressure on companies to change the ‘pale, male and stale’ look and feel of corporate governance. Boardrooms need more female directors. This means there are huge opportunities for aspiring female non-executive directors and people from more diverse backgrounds.
Large scale investors are increasingly challenging companies to ensure a healthy level of diversity at boardroom level.
Diversity and inclusion matter to investors. Why? The investment firm Morgan Stanley says investors are putting pressure on companies to change corporate behaviours for two main reasons:
1: To create a better world
2: To create better-performing, more innovative companies
Boardroom diversity is no longer a tick box exercise
Diversity encompasses a wide range of experiences and characteristics, including gender, race, nationality, ethnicity, age, sexual orientation, cognitive bias, family status, education, socioeconomic background, disability, and religion.
“Each person brings different perceptions, diverse perspectives, work experiences, lifestyles, and cultures. Investors want to see this diversity reflected in company boards, not for diversity sake but because it’s better for business.,” says David W Duffy, CEO of the Corporate Governance Institute. “Boardrooms need more female directors, just as a starting point. Boards need to reflect the communities they operate in.”
Inclusion is a state of being valued, respected, and supported. It focuses on every individual’s needs and securing the right conditions for each person to achieve their full potential. In simple terms, diversity is the mix and inclusion is getting the mix to work well together.
Why do investors believe boardrooms need more female directors?
Why is diversity so important to investors? Because diverse boards make better companies and better companies make more money and better impact their community and the wider environment.
The demand for more diverse and inclusive boardrooms will provide a broad range of opportunities for people interested in becoming a company director and board member.
The international investment form Blackrock.com sums up its approach to inclusion and diversity like this: “We believe companies that fail to take inclusion and diversity (I&D) issues seriously cannot fully understand the forces shaping their business, the economy and the world. Today’s most difficult challenges come from a diverse, interconnected world; a diverse and well-networked group of professionals have the best chance of responding to such challenges. Inclusion and diversity is therefore not just a values-based focus, but instead a meaningful investment consideration.”
Why does boardroom diversity translate to better company performance?
Key reasons include:
- Employee satisfaction. Diversity – and gender diversity, specifically – results in superior employee performance. Happy workers create better products. It’s also significantly more expensive to hire new employees than to retain existing employees, so by keeping your workforce motivated and engaged, it adds to a company’s bottom line.
- In many Western countries experiencing an ageing and shrinking workforce, better family-life balance, flexible working, and maternity and paternity leave are drivers of higher achievement for many reasons, including helping companies in competitive markets attract top talent.
- Diversity encourages innovation. A more diverse boardroom and workforce can improve a company’s strategic decisions and drive innovation around new products and services. If everyone sitting around a boardroom has similar backgrounds and perspectives, this often creates involuntary blind spots in decision-making and strategy.
- Appealing to a more diverse customer base often means reaching out to new markets. Successful expansion into more diverse markets can add new revenues for a company.
- Reputational risk is a real issue. We read negative headlines when companies experience controversies over pay gaps, sexual harassment litigation, equal opportunity litigation, etc. While these issues can happen at diverse workplaces, many investors like to see companies that actively support women and people from more varied backgrounds.