VIEWPOINT

KEY THRUSTS POWERING BOARD DIVERSITY

BOARD DIVERSITY

SEAH GEK CHOO

WHY IT MATTERS AT THIS TIME

Studies have repeatedly shown that increasing diversity is not only the right thing to do for an organisation’s culture, it also leads to better business outcomes. In this article, we explore three key thrusts that are powering the boardroom diversity agenda, particularly in the midst of the current uncertainties brought on by the Covid-19 pandemic.

KEY THRUST 1

The expanded scope of Board diversity in three broad domains: Professional, Positional, Perspective

In the wise words of Henry Kissinger, “The historic challenge for leaders is to manage the crisis while building the future.” Board leadership is no exception. In order for Boards to excel in their role of strategic planning and oversight, the Board members must represent independent and diverse perspectives. Figure 1 details the three broad domains – Professional, Positional, Perspective – that make up a Board, and it is evident that a diverse Board means it will have the skills, qualifications and experience needed to connect to trends shaping the business, including technology, globalisation, consumer preferences and business strategy.

Figure 1

Source: Deloitte Southeast Asia

Boards play a proactive and leading role in steering organisations through crises. They are expected to demonstrate a deep understanding and fluency of the broader market context and assess how multiple risks are intertwined. In this current Covid-19 environment, there is a need for Boards to safeguard corporate reputation and be guided by an ethical framework as they devise response and recovery strategies. In short, for the organisation to earn the licence to operate under more stringent conditions, it will have to depend on how its Board portrays stability and commitment towards its key stakeholders during this period by asking and addressing the right questions (Figure 2).

Figure 2

Source: Deloitte Southeast Asia

KEY THRUST 2

Board diversity is no longer a moral debate but a key differentiator for organisations pursuing long-term growth and sustainability

Figure 3 shows the diversity of the business ecosystem where there are simultaneous shifts happening constantly. For leaders who have perfected their craft in a more homogeneous environment, rapid adjustment is in order. Of course, the core aspects of leadership, such as setting direction and influencing others, are timeless, but there are new capabilities that have become vital to the way leadership is executed to address the changes that are relevant today.

Figure 3

Source: Deloitte Southeast Asia

One major change is in relation to the social contract. Societal expectations of corporations are being reframed to ensure the viability of all stakeholders. The Covid-19 pandemic has lifted the veil further on what the future of work will look like, and in the implicit “future of work” contract, remote work may be both more productive for the organisation and more desirable for employees. However, successful work-from-home arrangements are premised on having sufficient technological and cybersecurity capabilities for business continuity, and employee productivity in the home environment.

To mitigate this change, leaders are expected to expand their knowledge on emerging human capital trends – there are new considerations around work-life balance, job fluidity, and employee well-being. These factors are reshaping how, where and when we work, and a diverse Board that embraces inclusive leadership can hold the organisation accountable for workforce management actions, including implementing appropriate measures to ensure the health, safety and welfare of its employees.

Another change is the disruption of markets with the advent of new business models. The Covid-19 crisis has had a profound impact on customer behaviour and has hastened a new wave of technological advances.

The imperative for the Board in this case is to anticipate if and how the pandemic has permanently altered behaviours, experiences and expectations, and the role of digital engagement. Boards that embrace diversity and inclusivity will be better positioned to address these challenges from a holistic perspective by considering the wider social implications of any corporate action or policy. For example, a broad, diverse representation on the Board will ensure that minority views are considered, minimising exclusionary policies from occurring, and a Board with a global perspective will also ensure organisational policies are adapted to emerging social issues like anti-discrimination and environmentalism.

KEY THRUST 3

Board strategies that are driven by a robust diversity and inclusion agenda

A multi-stakeholder process of governance is integral to sustaining business recovery in the wake of a crisis. In this Covid-19 pandemic, there are three obvious strategic considerations that will guide businesses to recover and thrive.

Firstly, where accelerating digital transformation is concerned, leaders should prioritise the most important digital investments and potentially rethink the technical architecture of the organisation. The ultimate challenge may be around funding these investments to keep up with the pace of change.

From a Board perspective, a diverse one composed of members with strong ethics can advocate for responsible human-machine collaboration. As technology becomes more embedded into work, its design and use need to be assessed for fairness and equity. Boards should consider probing questions such as whether applications of technology decrease or increase discriminatory bias; what procedures there are to protect the privacy of worker data; whether technology-made decisions are transparent and explainable, and what policies they have in place to hold humans responsible for those decisions’ outputs.

The second consideration is how the social contract with workers has changed, and if this change is permanent. New regulations such as social distancing have impacted labour dynamics (for instance, the rise of the gig economy) and it is important to consider the safety and well-being of employees as the business recovers, and whether there is the right and sufficient infrastructure in place to ensure business continuity.

A culturally diverse Board will recognise that the alternative workforce may experience lopsided treatment in this situation from issues such as access to fair pay, healthcare and training benefits. To ensure that this critical source of talent is not side-lined, the Board should take the lead in making decisions through an empathetic lens and guide management on sensitive labour issues with far-reaching impact.

Thirdly, managing the changes in stakeholders’ expectations is important. Boards need to be acutely aware of their responsibilities, and also of their contributions to the financial, physical, emotional, and digital well-being of management, employees, investors, and other stakeholders. In this Covid-19 crisis, environmental, social and governance (ESG) responsibilities have come to the fore, and expectations should be set for the range and measurement of organisations’ ongoing ESG efforts as they move to recover and thrive.

In this regard, a Board with diverse disciplines will be equipped to advise management on the areas where trust needs to be nurtured and where confidence needs to be restored, including areas of executive remuneration and ESG strategies which can stand up to public scrutiny.

CONCLUSION

In order to have effective Board diversity, the nominating and governance committee, as well as individual directors, must be willing to go beyond existing relationships to consider integrating less familiar candidates. Directors can also gain first-hand knowledge of women and minority talent by sponsoring and mentoring diverse leaders both within the companies they serve and within their extended networks.

A skills assessment is worth considering as long as it provides a robust and objective evaluation of each director and the collective skills of the full Board. The exercise can include comparables with directors in the same and related sectors to see, for example, whether international or deep industry experience might be an important addition to the Board. Matrices that provide a full view of an entire Board’s skills and experiences are also helpful tools, especially to jumpstart the evaluation process, depending on the organisation and industry. Developing such matrices can be more efficient than conducting assessments of individual director’s skills. Some companies publish director skills matrices (either individual or collective) in their corporate governance reports, offering transparency and establishing an important baseline to measure future progress.

Also, it is vital to effectively communicate externally how Board-level diversity and composition efforts support the organisation’s strategy and innovation planning, as well as help protect its business model against disruptive threats. Activist investors are clearly scrutinising Board composition, and other investors need to know how the Board influences and monitors a company’s performance objectives in addition to, and in support of, the Board’s more traditional governance oversight duties. Such transparency shows how directors contribute uniquely to the success and prosperity of the organisation – an important goal for any Board.

Lastly, cultivating inclusion is key, and this can be done through articulating the current state of the Board’s approach to inclusion governance, assessing that approach against leading practices, identifying what can be done to achieve inclusive governance goals, and implementing the change necessary to accomplish those goals.

Clearly, Board diversity requires Board-level interventions.


Seah Gek Choo is Southeast Asia and Singapore Leader, Deloitte Centre for Corporate Governance, and Talent Leader, Deloitte Southeast Asia.