Boardroom Diversity

Published: 2019-10-31 14:00:00
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Over the recent past, corporate governance, as a practice of establishing regulations that direct and control the operations of business organizations, has evolved to accommodate various groups of people in response to the increasing diversity of the British society. The revision of the UK Corporate Governance Code emphasized the need for corporate institutions to embrace inclusivity in corporate matters. The revised guidelines encourage companies to incorporate more women and minority groups in the boards as a way of fostering diversity in corporate management. .According to Deloitte (2016), the recent version of the code recognizes diversity not only in terms of race and gender but also in management approaches and experiences. The code obligates all stakeholders of corporate firms to give regular disclosures on the achievements made in fulfilling its recommendations. A diverse boardroom is expected to confer several benefits on the companies, including increased revenues, improved public image, and sustainable growth. The discussion will consider the effect of different forms of board diversity on board behavior.

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As mentioned earlier, gender and race represent the dominant elements of the UKs Corporate Governance Code .Recent statistics show that significant progress has been made towards the attainment of the goals of diversity as set out in the 2010 corporate governance guidelines. Citing the Cranfield report, Farrell(2015) indicates that the implementation of the new guidelines has more than doubled number of women on boards of listed companies since 2011.The increase has been credited to the willingness of many business leaders to bridge the gender gap on their boards as well as in mainstream organizational positions. In statistical terms, the number of female-held directorship positions on the FTSE 100 boards rose to 23.5 percent in the year 2015, representing an 11% increase from the figures reported by Lord Davies in his maiden diversity progress report of 2011.In effect, the number of all-male boards on the FTSE 100 reduced to none by March 2015(Vinnicombe et al., 2015).However, the representation of minorities remains low. According to Davidson (2015), less than 2% of directorships on 150 FTSE companies are Black, Asian and minority ethnic (BAME).This representation reflects the levels of female board directorship recorded in 1998.

The new look of corporate boards in the UK presents various management issues that business leaders must deal with to ensure smooth and quality decision-making processes at boardroom meetings. Research has demonstrated that organizational diversity is likely to engender new behaviors in boardrooms. Adams and Ferreira (2009) found that diversity in boards influences the attendance of boardroom meetings. Their findings show that women are more likely to have less attendance problems compared their male counterparts. Moreover, punctuality of women has a bearing on the attendance behaviors of men; the larger the fraction of women on the boards the better the attendance of the male directors. Such behaviors play a significant role in the monitoring of the performance of corporate managers of the relevant business institutions. Davies (2011) and Ferreira (2011) note that the result of more scrutiny of the managerial activities reduces risk, and is more likely to safeguard the value of the shareholders. As the value of the shareholders increases so does the expectation of the boards. This scenario is likely to place a new expectation on the boards, resulting in a more consultative working relationship between the established members and the incoming minorities.

Adoption of diversity in boards brings an array of skills and experiences from people of diverse backgrounds. According to Mercer (2014), a majority of board members of UK corporate firms are likely to be older men and draw their skills and experiences from the public service whereas women directors are more likely to be younger and possess experiences in the private sector. This combination of competencies and experiences are bound to cause a change of practices during board sessions. A body of research shows that women possess communication skills that are at variance with those of men. They are more likely to be reconciliatory, more willing to embrace dialogue and often show inquisitive traits in discussions (Davies, 2011).Coupled with private sector experience and their relatively younger age, the presence of women in boards might improve the value of the decision-making process. The boardroom discussions can be expected to be more open-minded, and incidences of boardroom conflicts are likely to reduce as a result of the exhaustive and dialogue-minded traits that are inherent in women. On the flip side, resistance against the management style of the new boardroom entrants might occur as a strategy of preserving the conventional decision-making processes.

Requirements for companies to embrace diversity seek to dismantle personal, cultural and institutionalized practices that create and sustain privileges for a particular group of people while creating and sustaining advantageous conditions for others (Patrick & Kumar, 2012).Although conflicts among board members are healthy occurrences in corporate management, the introduction of diverse persons onto the boards has the potential to cause friction between the members. As indicated in the preceding discussion, most boards are male-dominated, and most of these individuals are of older age. Researchers have found that age increase has a negative relationship with the perception of diversity openness in boardrooms (Patrick & Kumar, 2012). Such relationship builds stereotypes against the incoming minorities which in turn affects interactions. Board teams that do not develop close connections with all of its members are bound to experience splits, which are likely to reduce the cohesiveness of the board(Association of Chartered Certified Accountants,2015).As board members become more identified with board sub-groups, the less the flow of information(Patrick & Kumar, 2012). The mentioned scenario could result in mistrust among the board members. Moreover, the blending of different skills and experiences is likely to escalate conflicts on the boards. Vinnicombe et al.( 2015) and Mercer(2014) attribute such conflicts to the wider range of perspectives regarding policy and strategic issues that arise as a result of diversity. For instance, female directors may have conflicting views with their men counterparts on accessing women market segments.

Establishment of diverse corporate culture is one of the governance issues that informed the recommendations of Lord Davies in 2010(Financial Reporting Council, 2014).The recommendations recognized the expanding role of minority groups in the UK economy. By the year 2051, projections of demographic trends indicate that one in five of Britons will hail from an ethnic minority background (Deloitte, 2016).These statistics represent a substantial portion of public consumption which requires attention from the business community. Arguably, the continued increase in boardroom representation of minorities will have an impact on organizational culture. Lunenburg (2011) defines organizational culture as the combination of assumptions, values, norms, beliefs and habits that a particular organization follows in order to achieve its objectives. Essentially, the organizations culture defines individual behaviors at the workplace in relation to their jobs. As Adams and Ferreira (2009) explain, the personal beliefs, values, and norms of the minorities would interact with those of the organization to yield behaviors that offer an optimal contribution to the goals and objectives of corporate institutions. As a result, the different forms of diversity could disrupt the established behaviors in boardrooms of corporate firms.

Despite the acceptance of diversity in corporate circles in the UK, issues of replacing the male directors remain a source of discomfort in the boards (Davies, 2011). Several studies show that experienced male board members are likely to feel sacrificed to pave the way for the minority numbers (Adams & Ferreira, 2009; Vinnicombe et al., 2015).One of the effects of the changes to boardroom representation is tokenism. Financial Reporting Council (2014) describes tokenism as the tendency of business organizations to fill directorship positions for the sake of fulfilling stakeholders requirements of diversity without giving the minorities an active role in the management affairs. In spite of the endowment with unique skills and experiences Davies (2011) and Mercer(2014) caution that tokenism tends to alienate minorities, creating room for the development of passive tendencies due to its propensity to demean ones potential in terms of personal skills and experiences. Several researchers have corroborated the assertion that tokenism underutilizes the potential of minorities. Findings of studies conducted by Adams and Ferreira (2009) and Vinnicombe et al. (2015) reveal that value is realized from women and minorities on corporate boards if the number is adequate to eliminate issues related with passive participation in the entire decision-making process of companies

Conclusion

Since the revision of the Corporate Governance Code in 2010, significant changes have occurred in the composition of corporate boards in the UK. The changes continue to influence business decisions in several ways. Diversity requirements have led to the emergence tokenism as a remedy to the inadequate representation of women and minorities in corporate boardrooms. Also, the new requirements have shown a potential for conflicts in boardrooms. These frictional issues are anticipated to continue until a complete paradigm shift is realized in the management of corporate institutions in the country. Although recent records show substantial progress on women inclusivity, little has been achieved in bringing BAME groups on board. However, the future looks bright as more and more nations continue to embrace the spirit of equitable representation in all spheres of public life. For the UK to attain the status of other European countries, all stakeholders including the government, public, chairpersons of corporate institutions, and the media must take a leading role in championing the inclusion of more women and minority groups not only in the management of corporate firms but also in other areas of public life.

References

Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291-309. doi:10.1016/j.jfineco.2008.10.007

Association of Chartered Certified Accountants. (2015). Global body for professional accountants | Accountancy | ACCA Global. Retrieved from http://www.accaglobal.com

Davidson, L. (2015). Ethnic minority board members stuck at 1998 levels of gender equality. The Telegraph [London].

Davies, L. (2011). UK Government. Retrieved from https://www.gov.uk/government

Deloitte. (2016). Women in the Boardroom:A global perspective. Retrieved from www2.deloitte.com

Farrell, S. (2015). Women in the boardroom: A global perspective. The Guardian [London].

Ferreira, D. (2011). Board Diversity. A Synthesis of Theory, Research, and Practice, 225-242. doi:10.1002/9781118258439.ch12

Financial Reporting Council. (2014). Financial Reporting Council. Retrieved from https://www.frc.org.uk/

Lunenburg, F. C. (2011). Understanding Organizational Culture:A Key Leadership Asset. National Forum of Educational Journal Admnistration and Supervision Journal, 29(4), 93-117. doi:10.4135/9781446280072.n5

Mercer, M. (2014). Diversity at senior team and board level. Institute for Employment Studies, 1-10. Retrieved from http://www.employment-studies.co.uk

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