Talking Governance: Why board diversity is important for success

Board diversity

Should the Royal Australian College of General Practitioners (RACGP) be lead by GPs only or a more diverse mix of directors? In the lead up to the College’s general meeting on May 30 board diversity has been one of the topics of debate.

The composition of boards and councils of other Colleges has been used as an example but, more important than what has been happening so far, is where we will be in 5, 10 or 20 years time. A new Governance Model should prepare the RACGP for future challenges. This requires more than just looking at what other Colleges do today.

The Trump response

When President Donald Trump ordered a closure of the US borders to prevent Muslim refugees and visitors entering the country, the Scientific American republished How Diversity Makes Us Smarter by Katherine Phillips, Professor of Leadership and Ethics and senior vice dean at Columbia Business School.

“Simply being exposed to diversity can change the way you think”

Professor Phillips argues that diverse teams are more innovative than homogenous teams, referring to a body of research by organisational scientists, psychologists, sociologists, economists and demographers.

“Diversity enhances creativity”, she says. “It encourages the search for novel information and perspectives, leading to better decision-making and problem solving. Diversity can improve the bottom line of companies and lead to unfettered discoveries and breakthrough innovations. Even simply being exposed to diversity can change the way you think.”

Not-for-profit boards

Vernetta Walker of BoardSource, an organisation based in Washington supporting nonprofit board leadership, says that achieving diversity on a nonprofit board is a challenging but doable and essential task.

“Don’t assume everyone agrees about what diversity and inclusion mean for the board,” she says. “Before asking ‘How do we become more diverse?’ boards must ask ‘Why do we need to become diverse?’

“Boards with a good gender balance perform better”

The evidence to answer that question is coming largely from the field of gender diversity. Louise Pocock, Deputy Executive Director of the Australian Governance Leadership Centre says that several studies have shown that boards with a good gender balance perform better.

Although board diversity often refers to gender, momentum is growing that diversity is also about other aspects such as ethnic and cultural background, age, education, skills, experience and boardroom behaviours and attitudes.

“A board comprised of diverse individuals brings a variety of life experiences, capabilities and strengths to the boardroom,” she says. “There is greater diversity of thought and a broader range of insights, perspectives and views in relation to issues affecting the organisation.”

“Diversity of thought may, in turn, encourage more open-mindedness in the boardroom, help generate cognitive conflict and facilitate problem solving, and also foster greater creativity and innovation. It also reduces the risk of ‘group think’ – where board members’ efforts to achieve consensus overrides their ability to identify and realistically appraise alternative ideas or options in relation to the organisation.”

Reluctance to adapt

Sally Freeman and Peter Nash from KPMG Australia state that boards of tomorrow need to be nimble, and responsive to the rapidly changing environment.

The authors say that, in order to create board diversity it is important for boards to recognise their conscious and unconscious biases. The key to good diversity is getting the mix right to achieve a shared purpose – overcoming biases and assumptions – and then, how that mix is managed, which requires a chair who is adept at facilitating open and robust discussion. Boards don’t make a huge number of key decisions but the ones they do make need to consider the breadth of challenges and opportunities faced by the business.”

“Sometimes boards are reluctant to adapt”

“However, sometimes boards are reluctant to adapt. These are the boards that struggle to see how current social, environmental, geo-political or technological issues could impact their business – at times only recognising the consequences once it’s too late. There is further evolution required for those boards who take the view that these issues are ‘not real’ or do not impact their organisation. Diversity can assist with surviving this evolution.”

Long-term success

Suzanne Ardagh from the Australian Institute of Company Directors (AICD) says that board diversity is a component of a strong performing board and that research now shows that high performing boards are very much aware of how their board composition could contribute or detract from robust discussions, decision-making and ultimately, performance.

She says that a mindset shift is required to create more diversity on boards and that this is essential to set up an organisation for the future and for long-term success. “I would urge Chairs and Directors to make that change which society is seeking. Boards need to become more inclusive of the wide and diverse community that we are – it is an imperative that becomes more acute every day.”

“A mindset shift is required to create more diversity on boards”

Vanetta Walker advises boards to expand diversity, but limit board size. “Many organisations identify their needs for inclusiveness and diversity only to confront the biggest challenge of all: how to fill all those needs without weighing down the board with too many members. When a board is too large, some members may feel disengaged, and decision-making can become cumbersome.”

“Diversity really impacts decision-making, and good decision-making is good governance,” says CH2M Hill board member Georgia Nelson (see video). “Having diverse folks around the table really drives you to let go of conventional thinking. You get out of traditional boundaries and you begin to think about things in a different way, and by doing that innovation grows and prospers.”

Disclaimer and disclosure notice. Follow me on Twitter: @EdwinKruys.

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5 thoughts on “Talking Governance: Why board diversity is important for success

  1. Dear Edwin, absolutely agree with how the RACGP is leading in governance on this issue.

    Independence in thought, fresh eyes and diversity will allow the college to make well thought out decisions.

    Fresh from the AICD CDC course, I can see how this will leave a great legacy and impact the college for years to come.

    Like

  2. Thanks for your feedback Jonathan. The last RACGP governance review was 16 years ago and it is time for an update to futureproof the organisation according to the latest governance insights. Having said that, it is now up to the members to vote on May 30.

    Like

  3. Pingback: Talking governance: Getting rid of the disconnect | Doctor's bag

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