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Setting the benchmark in corporate integrity

Diversity: missing the wood for the trees?

Much has been made of the lack of women on boards recently. But positive discrimination has it’s flaws, writes Melanie Wadsworth

April saw the publication of Lord Davies’ second annual progress report on women on boards. The primary recommendation of his original report, published in February 2011, was that FTSE 100 boards should aim for a minimum of 25 percent female representation by 2015. He is now encouraging FTSE 250 companies to take up the same challenge and asks FTSE 350 chief executives to publish, by September 2013, the percentage of women they aim to have on their executive committees by 2015.

Although supportive of the diversity agenda, I am increasingly uncomfortable with the narrow, male-versus-female context in which the debate is playing out. Diversity is not about quotas, but about ensuring that the board has a complementary and balanced set of skills and that all individuals feel able to express their views freely and effectively. The qualities which make up a diverse board are not necessarily male or female. Although a cluster of like-minded, male directors led by a dominant male CEO is one obvious route to “group think”, little debate or divergence of views seems to have been countenanced in the later cabinets of Mrs Thatcher.

Of course, the real reason why the scope of the debate has become polarised is the spectre of mandatory quotas for female board representation, which remains a genuine threat from Europe.  Whilst I accept that setting – and achieving – non-binding quotas for the UK may help see off that threat, I am concerned about the damage that may be done by setting artificial targets for representation too high. If the pool of female talent is not yet available to support these self-imposed quotas, we risk placing women on boards who are simply not ready to hold such office.

This is in no way a question of women not being as able as men, but reflects what Lord Davies has identified as the “executive pipeline challenge”. The only way to become a successful executive director is by gaining relevant experience and achievements over many years. Whether we like it or not, traditional attitudes towards women kick in much earlier in a woman’s career than at the stage she is ready to join the board. If women are not yet being given equal opportunities and support throughout their career, it is naive to think there must be a backlog of women across all sectors ready and waiting to take up executive positions now to meet arbitrary targets.

The worst possible outcome would be to appoint women to executive positions who do not yet have the full skill set to perform at the highest level, thereby undermining the credibility of other female directors, including those who have got there purely on merit. I accept that there is always going to be an element of “learning on the job”, but surely it would be better to focus on mentoring and preparing high calibre female senior managers, with a view to getting them into executive board positions in 3-5 years time, than to accelerate them onto the board before they are ready, just to fulfil a quota.

For that reason, I applaud the launch of a new mentoring scheme by The 30% Club, which is a group of chairmen voluntarily committed to bringing more women onto UK boards, in association with Ernst & Young. This scheme seeks to allow talented, mid-career women to benefit from cross-company mentoring more typically reserved for senior executives. Too much of the diversity discussion to date, particularly in Europe, has been focused on non-executive quotas. That emphasis too often casts women in a subsidiary, albeit important, risk management role and underestimates their potential contribution. Accordingly, anything that shifts the focus towards executive training and addressing the pipeline challenge is good news.

Diversity is important, not as an end in itself, but to help create value for shareholders. There is no doubt that many women have qualities and perspectives that would enhance any board. Those same qualities – including emotional intelligence, a strong sense of responsibility and an ability to see both sides – are also demonstrated by many men. So, as we continue to feel the after-effects of financial crisis and reflect upon the corporate governance failures in some of our largest banks, let’s not forget the wider corporate governance debate about board effectiveness. Regardless of how many female directors it may have, a board will only succeed if it also comprises fully engaged non-executives with relevant experience and a strong executive team led by a CEO who encourages and responds to being challenged. To think that there is a magic number of women who can make everything all right is a lovely idea, but ultimately misses the point.

Melanie Wadsworth is a partner at Faegre Baker Daniels. Her thoughts are her own.

 

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