OPINION: In an effort to boost the number of women on the boards of listed companies, the NZX has instructed companies to report how many women occupy positions in senior management and on their boards.
Diversity supporters say the measures do not go far enough. Some have called for gender quotas. Others decry the overabundance of white middle-aged male directors. Diversity doubters talk disparagingly of tokenism and appointment by minority interest.
Both views miss the point that diversity - be it by gender, ethnicity or other classification - is never a driver of better board performance by itself, but can be a characteristic of a successful board.
First, the composition of a board is relevant only to the extent that it affects board performance. If a board's composition neither adds to nor detracts from a board's performance, then it ceases to be an issue. Companies are not democratic or representative entities that owe a duty to reflect society in ways that some think are desirable. Companies, through their boards, are accountable strictly to shareholders.
High-performing companies tend also to be acutely sensitive to their other key stakeholders, but that is another issue.
Second, superior board performance is judged by the quality of the board's decisions and how these decisions drive the company's success. Nothing else matters. Effective board composition can be defined as that which produces the best decisions. Any discussion on the need for diversity at board level must establish how exactly it facilitates better decisions.
The intractable problem is that all conventional concepts of diversity do not work when viewed against this imperative. On the gender argument, research is inconclusive that chromosomal makeup is solely and specifically a driver of better board decisions.
In the research, causation always battles correlation. For every argument that women cause companies to perform better runs the counter that successful companies correlate with many factors, including female representation.
The analysis is crowded with relevant variables and to isolate chromosomal makeup remains a huge challenge for regression analysis.
On the empirical front, I quote Dame Hazel Genn, a world authority on civil justice and a member of Britain's judicial appointments committee.
To suggest women make better decisions, she says, is "specious, discriminatory, patronising and anti-empirical".
It is surely just as demeaning to be excluded from a board for being a woman as it is to be appointed for being a woman. Pick out any element of diversity and the same problem persists.
RECENT research on board performance argues that the best boards are characterised by high- performing cultures that celebrate debate, controlled challenge and dissent, commitment, candour, respect and trust. Getting the right mix of skills, experience and behaviours is a difficult job.
However, a well-constructed team that commits to focusing only on the right issues at the right time and in the right way is superior to and outperforms one with any number of audit committees or diversity reports.
A board committed to this goal knows itself and logically seeks the best talent from whatever source to address its needs. It does not pack its ranks with some formulaic mix of component parts and expect magic as a result.
So New Zealand boards face two challenges for their composition. First, they need to look in the mirror regularly and identify the obstacles to their effective performance as a decision-making team. This can be painful and has proved too much for many of the old school.
Recruitment from the tried and true has been the risk-averse response and some argue that Kiwi corporate performance during the years of deregulation and competition has suffered as a result. Ultimately, only a board can be its own best judge of what it needs in skills, experience, insights and behaviours. This requires honesty, trust and commitment.
Second, it is unassailable that boards need to have access to the best talent from the largest talent pools. There needs to be a sustained focus on equality of entry to those talent pools and then to ensure that boards consider all for board selection.
The board of a listed company is not a training ground. Just as judges are drawn from the legal profession and surgeons from the medical profession, so directors are selected from the ranks of smaller and more focused constituencies. It is these smaller talent pools that need to be filled with a rich and diverse population and the onus to do so rests with every professional body, educational institution, economic enterprise, regulatory body and other entity that operates alongside the modern joint stock company.
Once boards are motivated and equipped to recruit solely for better decision-making and insist on the largest possible talent pools, then NZX diversity reports will increasingly make for fuller and eclectic reading.
Richard Baker is a former governance researcher. He is and has been a director of various companies in the agricultural and financial sectors.
- © Fairfax NZ News
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