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Margaret Kett is a Partner in the London based executive search firm Tyzack Partners. Tyzack and Lester Blades are both members of the Tinzon Group, which is an international alliance of executive search firms. In the article below Margaret discusses why diversity should be embedded in company culture. 

DIVERSE PROFITS

So much has been written and commented on about gender parity in the boardroom that one could be forgiven for thinking that there is little, if anything, that could warrant further comment.

Yet, according to one very recent report, the latest is that there are more than 600 billion reasons for increasing the number of women on corporate boards. That figure, actually $US655 billion of investment returns, is what professional services firm Grant Thornton believes businesses with an all-male boardroom missed out on last year. The firm’s research covered listed companies in India, the UK and US.

Unless there has been a seismic shift in the global business landscape, Grant Thornton’s data seem to fly in the opposite direction to other studies. For example, analysing the board composition and performance of the UK’s 350 biggest companies listed on the Financial Times Stock Exchange between 1996 and 2010, Dr Ian Gregory-Smith of the University of Sheffield and Professor Brian Main of the University of Edinburgh Business School, were quoted in The Economic Journal as saying; “There is no evidence to suggest that having more women in the boardroom either increases or decreases the company’s productivity.”

The authors here are not saying that women in the boardroom can’t improve corporate performance. Their data gathered over a 14 year period simply showed that, amongst other things, at the board level corporate productivity neither increased nor declined by having females on the board.

Grant Thornton are not the only ones seemingly to validate the proposition that having more women in the boardroom improves performance. McKinsey reported early this year that companies in the top quartile for gender diversity are 15 percent more likely to outperform their industry peers.

Is it possible that in arriving at this perceived wisdom  the issue is being looked at the wrong way around? Two issues come to mind: Could it be that strongly performing companies hire more women and that women, therefore, choose to work for more successful companies, or could it be that a company culture that fosters diversity is also the reason why a company performs better?

There is ample evidence to support what is becoming an increasingly accepted fact in business: diversity is essential to the growth and prosperity of any company because it helps to foster innovation and innovation breeds business success.

But the data relating to increasing the number of women in the boardroom may be confusing correlation with causation.

Let’s take a look at organisational psychology to provide a clearer view. In a business problem-solving context, a person’s value depends on his or her ability to improve a collective decision. In their paper ‘Groups of diverse problem solvers can outperform groups of high-ability problem solvers’, co-authors Lu Hong and Scott Page (Michigan Business School and Department of Finance, Loyola University) introduce a general framework for modeling functionally diverse problem-solving agents. In the common understanding, diversity in a group of people refers to differences in their demographic characteristics, cultural identities, gender and ethnicity, and training and expertise. Advocates of diversity in problem-solving groups claim a linkage among these sorts of diversity and what might be called functional diversity i.e. differences in how people represent problems and how they go about solving them. Given that linkage, it is concluded that, because of their greater functional diversity, identity-diverse groups can outperform homogeneous groups. In other words, diverse problem solvers can outperform even groups of high-ability problem solvers.

Today in many businesses, homogeneous groups are prevalent because there remains a gender bias at senior executive level and in the boardroom. This can usually be attributed to management practices that are based on stereotypical masculine traits that often conflict with the management styles of women. The belief that leadership is a function that requires masculine characteristics – someone who is transactional, assertive and who, emotionally, is in complete control – might have been effective 50 years ago but times have changed.

One of the key drivers of this change is a generational influence. With the increasing numbers of Millennials entering the workforce, the style of management is going to be of significant importance. Their key motivators are workplace culture, an inclusive and open management style, a sense of belonging, variety and flexibility. Interactive leaders are, therefore, more likely to develop diverse problem-solving groups than those who adopt the command-and-control style of management.

Even though there is little, if any, evidence to suggest that one form of management alone – transactional or transformative – achieves greater results, there is growing opinion that the combination of the two can achieve extraordinary results as measured by both financial and non-financial metrics. Being more diverse and inclusive does, however, provide the framework for companies to be more innovative and better positioned to understand their customers’ needs and to recruit and retain the best talent.

As much as governments and pressure groups insist on gender parity, placing more women in the boardrooms won’t automatically make companies perform better. Women are just as susceptible to groupthink as men and those companies that conform for the sake of conforming are unlikely to reap any advantage from a more diverse boardroom. Just as the case for having men on the board should be based on their merit to be there, the same applies to women board members.

Diversity is more than just strategic imperative - it is a mentality and if an organisation does not naturally embrace the concept of diversity, it is probably closed to many other commercial opportunities as well.

As Hong and Page rightly point out, the claim that perspectives and heuristics may be influenced by race, geography, gender, or age has much to recommend it, as does the claim that perspectives and tools are shaped by experiences, training and preferences.

Cognitive and heuristics diversity benefits innovation because people who see things in a different way can bring a different practice to solving problems and capitalising on opportunities.

Improving corporate performance goes way beyond simply hiring a handful of female executives. Once there is cultural change and diversity at all levels within the organisation (including the boardroom), companies will gain the competitive edge that comes from true diversity of thought. Thankfully, when that happens the question of women on boards will become a non-issue.

This article was published on linkedIn


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