Why business leaders must be bolder on diversity

17 December 2014 -

Ensuring that the composition of boards reflects that of the public is not just morally right, but right for business, writes a corporate communications expert

Keith Brookbank

In a recently unveiled initiative, business secretary Vince Cable called on more FTSE 100 companies to recruit at least one non-white board member by 2020. Enlisting the help of Sir John Parker – chairman of mining group Anglo American – and former Equality and Equal Rights Commission head Trevor Phillips, the proposal aims to end all-white boards by the end of the decade.

The white, male preserve of the British boardroom finds itself under scrutiny on a number of fronts. Top of the agenda for some time now has been the shortage of women in executive positions: just 12% in the UK, according to Grant Thornton’s latest Women in Business report. Last year, research from diversity specialist Equal Approach showed that social class was also seriously unbalanced within UK Plc. With further recent research showing that 69% of FTSE 100 companies are run by all-white executive teams, the topic of ethnic diversity is beginning to receive greater, and overdue, attention.

Dr Cable suggests that one out of every five seats in UK blue-chip companies should be occupied by people from a black, Asian and minority ethnic (BAME) background. He based those figures on the reasonable expectation that by 2020, that proportion would be of equal weighting to the overall population. Institutions such as the CBI criticised the proposals, citing the defence that businesses must be at liberty to recruit those who are best qualified for the “job”.

However, this is where many are missing a core part of the argument. Clearly there is a moral imperative to create equal opportunity – and to broadly match the makeup of organisations such as businesses and government with the overall composition of the UK as a whole. It’s the right thing to do. But that, in itself, is not always the best driver for boards. The “job” for board members is to generate the best returns for shareholders. And it is pressure from those stakeholders that will ultimately drive change. For that reason, the debate and communications around recruitment must include a focus on board and company performance.

There are credible reports that show diversity in the boardroom generates better decision making, and better returns, than those without diversity. McKinsey has produced a pivotal report showing that gender balance leads to better performance, and research from the National University of Singapore has confirmed that boards comprising at least two ethnic groups, two generations and both genders produced an average return on assets of 5.1% - compared to just 1.1% for boards that had no diversity. Their report is aptly titled The Diversity Dividend.

It is precisely this evidence-driven approach that is needed when communicating with boards and the shareholders they are answerable to.

It needs to be demonstrated that diversity is not just morally right – it is right for business, too.

Keith Brookbank is director at corporate communications consultancy Linstock Communications.

Image of Vince Cable courtesy of his website.