How board diversity improves culture and performance

More diverse boards will lead to improved decision-making on risk, resilience, and strategy, research published Tuesday has suggested.

The report, Board Diversity and Effectiveness in FTSE 350 Companies, by the Financial Reporting Council (FRC), together with London Business School and its Leadership Institute, and research consultancy SQW, found and made recommendations that include:

• It is the responsibility of the board chair to drive inclusion.
   
• Regulators and companies must focus on collecting more data on the types of diversity, board dynamics, and social inclusion.
   
• The nomination committee should be diverse and have a clear mandate to work with search firms that access talent from wide and diverse pools.
   
• The greater representation of women in the boardroom is reshaping culture and dynamics and benefiting businesses from a social justice as well as a performance perspective.

The report concludes with questions on diversity for boards and their chairs, CEOs, shareholders, and other stakeholders to consider "to improve board culture, board dynamics, and, ultimately, board outputs".

FRC CEO Sir Jon Thompson said boards should invest time and energy in making diverse appointments "not to achieve a target but because it will have a positive impact on their business".

He added: "The UK Corporate Governance Code makes it clear that board appointments should promote diversity and we want to see nominations committees reporting on progress.

"Many companies only set targets for gender and to a lesser degree ethnic diversity. We support the proposal that nominations committees should be diverse and have a mandate to work with executive search firms that will find talent from diverse backgrounds."

— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.