Assess Board Priorities in Line with Business Needs
An inclusive board welcomes and celebrates the diverse experience and perspectives of board members and ensures that all are equally engaged and aligned with the company’s mission and the board’s work.
When operating under an inclusive culture and inclusive talent practices, Deloitte finds that organizations generate up to 30 percent higher revenue per employee, are more profitable than their competitors, and become eight times more likely to achieve positive business outcomes.
The foundation of an organization’s approach to board composition and diversity must be anchored in supporting the overall strategy and goals of the organization. One of the most significant changes taking place globally across boards is the greater partnership model between the CEO/Executive team and the non-executive directors with respect to strategy. While the CEO and executive team remain responsible for strategy development, they now engage non- executive board members earlier in the strategy development cycle. They increasingly seek earlier feedback and encourage non-executive board members to bring their own perspectives to the range of strategic options being considered by the CEO and executive team. CEOs and executive teams also recognise that as each sector landscape becomes more complex and volatile, it is increasingly difficult to develop an organization’s strategy. The COVID-19 crisis has reinforced these challenges.
The following roadmap contains key steps your company can take to implement a successful board diversity and inclusion strategy that will realize tangible business results.
Develop a Succession Plan to Support Diverse Leaders
Step One: Assess Board Priorities in Line with Business Needs
Identify Board Skills Required to Enable the Board to Excel in Its Oversight and Support Role Consider the needs of the business today and the direction of the organization tomorrow. What is the planned direction for the next few years? When recruiting a new board director, you may wish to prioritise the new board director bringing particular skill sets and experience in a new market area, experience with product development, technology expertise or expertise in navigating the complex world of mergers and acquisitions.
It is also valuable to have the CEO and executive team provide their input on the skill sets, background and expertise of candidate new board directors who they feel would be very beneficial for the board.
Board directors have a broad set of responsibilities spanning oversight of the organization’s performance, executive team performance and financial health while also providing support to the CEO and executive team in key areas such as strategy. The evolving business landscape requires the board composition to be regularly assessed to ensure that the board members have the necessary attributes, experience, skill sets and diversity of thinking styles that can enable the board members, individually and collectively, to excel in executing their responsibilities on behalf of their shareholders and stakeholders. For example, board composition is critical when companies undergo significant changes due to shifts in business model, technology or macroeconomic factors. Boards with long-serving board directors should also consider periodically refreshing their composition to improve the board diversity and avoid stagnancy.
A critical factor impacting board composition is ensuring an optimum balance between sector specialist board members and generalist board members. Useful or ideal skills and experiences for a director a decade ago may be less relevant today. Similarly, a prospective board member whose background is similar to that of an existing board member may culminate in a redundant perspective rather than additive or transformational. This reality is particularly true to sectors undergoing rapid shifts. In mapping out the skills required, it is important to consider skills gaps. To that end, it is important to note that not all board members must have working knowledge or deep understanding of the sector the company operates in for them to be value-additive and or effective. While it is important to have strong sector knowledge represented in non-executive directors, a diverse range of expertise in key functional areas across different sectors adds a broader range perspective to board engagements. Many boards through the ongoing Covid-19 crisis have found it very beneficial to have expertise within the board of adjacent and distant sectors that enables fresh perspectives to common challenges.
Layer Skills Gap Analysis with a Diversity Lens
While identifying gaps in skill sets and areas of expertise that a new board director can fill, boards should also consider any existing gaps in diversity to ensure varied perspectives and experiences are well-represented.
Refrain from stopping at just one woman: a study by the Wellesley Centre for Women found a critical mass of women is truly required to yield the full benefits of diversity, having a third or more women is the critical mass from which a board can begin to leverage the diversity dividend.
Step Two: Develop a Succession Plan to Support Diverse Leaders
Progressive boards utilise succession planning processes to build diverse, inclusive boards. Many boards use a skills and diversity matrix to manage their board composition roadmap. This tool identifies gaps in competencies as well as diverse experiences and perspectives amongst current directors to identify opportunities to strengthen the board’s composition if a new director is added or an existing director steps down. The matrix should be continually updated to ensure that the desired skills, experience and diversity are present and align with the organisational strategy.
How to Build a Board Composition and Diversity Matrix
1. For each board director, identify their level of experience in the key skillsets and experiences outlined in Figure 7.
2. For each board director, add the following information to the matrix:
3. The Board Chair, CEO and Company Secretary work with the Nominations Committee (if one is present) to identify a plan to recruit new board directors based on
(a) Net new addition of board directors to address key gaps in the board skills and diversity
(b) Replacement of existing board directors who are stepping down
4. Commence the process a minimum of 3 months in advance of each new board member addition to enable a high-quality recruitment process
For both boards of directors and advisory boards, a vacancy is an opportunity to bring in new knowledge, experience and perspectives. To be prepared to bring in those fresh perspectives, boards must build a diverse pipeline of rising leaders, both at the executive director level and non- executive director level. Keep an eye out for talent – even when they are not formally looking.
These relationships can be fostered through industry associations, professional organizations, and partnerships with communities and non-profits like TheBoardroomAfrica (www. theboardroomafrica.com). By building these relationships well ahead of a transition, the board will strengthen the pipeline of high-quality candidates. In the case of up-and-coming executive talent, the most progressive boards and CEOs provide guidance on how to develop skill sets critical for success at the executive director and board level. Because many female executives are first-time board members, this approach is particularly critical to fostering gender diversity.
Develop a Strong Onboarding Process to Fully Leverage the Benefits of Board Diversity
Step Three: Develop a Strong Onboarding Process to Fully Leverage the Benefits of Board Diversity
It’s not enough to bring diverse candidates through the door. To enable their success and enable the board benefit from increased diversity, it’s vital to ensure a smooth onboarding process to help the new board member get off to a strong start. Adopting the following approach can help streamline the transition process:
- Schedule a meeting with the Board Chair to help the new board member understand key priorities and board focus areas
- Schedule a meeting with the CEO and Executive team to facilitate understanding of the organization day-to-day operations
- Provide a welcome pack containing recent board/committee packs, strategy, business plan and governance materials
- Arrange structured visits to the organisational HQ and regional offices
Many board chairs find that appointing an existing board member as a mentor can help get new board members up to speed quickly and enable them to contribute effectively from the start of their tenure. Thoughtful approaches to committee assignments for new board members are one way to help ease the learning curve and help new directors lean into their positions while building their confidence in leveraging their skills in the boardroom. For example, an Audit and Risk committee might benefit from a new director with extensive legal, compliance, and cybersecurity expertise to strengthen the oversight of internal controls and risk management procedures.
Each new board member will impact on the existing board dynamics. Moments of transition represent an exciting opportunity to evolve and strengthen the board dynamics to improve the quality of the board’s discussions and decision-making processes. As board diversity improves, this provides an exciting opportunity for the Board Chair to leverage the increase in the range of different perspectives and thinking styles to improve organisational outcomes.
To ensure that the board is operating in that context, consider these potential scenarios, adapted from Deloitte & Board Excellence:
- During discussions tense or sensitive topics in board meetings, do all board members contribute equally and feel welcome to do so? If not, how can the board operate differently to create an open and authentic environment for all of its members?
- Has the board nurtured a cycle of “challenge, debate, respect and trust” to facilitate healthy debate to address difficult topics?
- When considering a potential acquisition, does the board reflect on the target organization’s overall culture and approach to diversity and inclusion strategy vis-a-vis the organization’s existing culture and approach to diversity and inclusion? If the board is not as advanced in these areas, what key people or operational risks could the organization potentially take on, and how can they be mitigated?
- Where the board and executive team face key challenges in the strategy and business model areas or a serious operations crisis, are board members encouraged to bring alternative solutions to the table?
Step Four: Evaluate and Drive Sustained Improvement in Board Effectiveness and Governance
Regularly Review and Measure Board Effectiveness and Performance
The board of directors is responsible for ensuring strong leadership of an organization and acts on behalf of its shareholders, employees and stakeholders. A diverse, inclusive board not only sets the tone for management but also for shareholders, investors, customers, employees, and other stakeholders. To truly reflect and shape an organization’s inclusion strategy, therefore, the board must reflect the diversity of an organization’s customer base and strive to build an inclusive boardroom culture. Boards can monitor the impact of improved diversity on the overall board effectiveness and performance through the following mechanisms:
• Internal board evaluations
• External independent board evaluations
• Short feedback discussions at the end of each board meeting led by the Board Chair to build on positive dynamics and identify areas for improvement
• Ongoing monitoring by the Governance Committee working closely with the Board Chair
These mechanisms enable the board to measure and embed the benefits of improved board diversity to achieve:
• Diversity of thinking styles and perspectives around the table
• Strong levels of “independence of mind”
• Strengthening of the board’s commitment to act responsibly
• Increased range of creative and strategic thinking capability
Boards can help management define a shared vision for inclusion and embed that vision into the business strategy by monitoring diversity and inclusion metrics. With data, the board can not only track organisational progress but also guide its efforts to embed inclusive thinking and behaviour across all dimensions, from strategy to talent and performance.
High-performing boards have a wide range of thinking styles, backgrounds and experiences which enhances the overall capability of the board, improves decision-making, avoids the potential for serious group-think problems, strengthens their ESG focus, and increases the ability of the board in terms of asymmetric, strategic and left-field thinking. This not only helps a board in times of crisis but also enhances the overall ability of the board, executive team and organization to radically innovate in the strategy and business model area in an era of increasing market volatility and change.
Shareholders and stakeholders have entrusted a significant responsibility to each individual board director and the board team to demonstrate outstanding leadership and nurture the organization’s long-term sustainable success. Board diversity plays a critical role in enabling boards of directors to excel for their shareholders and stakeholders. We hope that this toolkit provides key practical support to help your board’s journey and commitment to excel in effectiveness and performance