Diverse forms of diversity

In the spotlight: Board diversity

Diverse forms of diversity

Bruno Rossi
Partner, Assurance, PwC Switzerland

Loud calls for more diverse boards of directors have unleashed a new wave of emancipation that goes far beyond the issue of gender. Ethnic identity, age, qualifications, professional experience and emotional competence also figure in the debate.

The fact is, organisations with diverse strategic leadership are capable and well equipped for the future. This means that chairs and members are well advised to take seriously the need for board diversity and act accordingly.

Diversity is a global trend. Given that in many countries the quotas are imposed by law, the change isn’t completely voluntary. Norway was the first European nation to introduce a quota for women. For more than five years there has also been legislation in place in Austria, Belgium, Denmark, Finland, France, Greece, Italy, the Netherlands, Portugal, Slovenia and Spain, stipulating quotas of between 30% and 40%, depending on the status of the company (private or state-owned) and criteria such as the number of employees, sales and stock exchange listing.

In many cases, the minimum requirements for boards of directors/supervisory boards and executive management also differ. More recently, since 1 January 2016 Germany’s law on the equal participation of men and women in management positions has stipulated that women must account for 30% of the supervisory boards of listed companies. As shown in Figures 1 and 2, the situation in these countries reveals a larger proportion of women in leadership positions than in Switzerland. While the comparative data varies depending on the composition of the companies analysed, it does provide a good snapshot of the current situation. Overall, the share of women in executive positions is significantly lower than the proportion of female non-executive directors and supervisory board members.

Women in leadership positions in selected European countries

Figure 1: Women in leadership positions in selected European countries
Source: https://de.statista.com/infografik/15519/frauen-in-fuehrungspositionen-im-eu-vergleich [Except Norway and Switzerland, source European Women on Boards (Statista 2018)]

Figure 2: Percentage of women on Swiss boards of directors
Source: https://www.handelszeitung.ch/management/so-weiblich-sind-schweizer-verwaltungsrate

US taking action

Diversity has long been a hot topic in the United States. For example, the world’s third-largest asset manager, State Street Global Advisors (SSGA), systematically votes against the entire slate of board members on the nominating committee of any company that has not improved its gender diversity during the reporting year. SSGA has announced that from 2020 it will also vote against boards in the UK and Australia that don’t include at least one female member and where the company is not willing to engage in dialogue on diversity, and that from 2020 this policy will be extended to Japan, Canada and Europe.

In September 2018, California enshrined in law the requirement that any company listed in the state must have a woman on its board of directors. From 2021, boards with five members must include at least two women, and those with six at least three. Violation of this law incurs a fine of USD 100,000 or more.

Greater than the sum of its parts

As the word implies, diversity takes diverse forms. So it doesn’t do the topic justice to reduce diversity to the question of gender. It also encompasses cultural origins, age, educational background, professional experience, board tenure, and diversity of thought. A board of like-minded directors might be easier to manage, but broader diversity enhances the value of the work done by the board and thus benefits the entire organisation. There are several reasons for this:

Diversity expresses the variety of the board’s culture.
Diversity enables new ways of thinking and looking at things, giving the board a better feel for subtleties and nuances.
Diversity prevents groupthink (see the Rules beyond regulation article by Sarah Kane)
Diversity encourages open dialogue and helps create an atmosphere of constructive debate.
Diversity makes collaboration more efficient.
Diversity on the board reflects the diversity of markets, customers and employees.
Diversity builds public perception.

Board members themselves have different takes on the commercial significance of diversity and its various aspects. Gender diversity is one of the key factors. It’s no accident that board gender diversity has become much more important in recent years (see Figure 3) and is right at the top of the agenda for many organisations.

Gender diversity grows in importance

(% responding that gender diversity is very important)

Figure 3: Gender diversity grows in importance.

Interestingly, there are huge differences in opinion between board members when it comes to the attributes involved in achieving diversity, with women placing much greater emphasis than men on the gender aspects of board diversity. Women also see other aspects of diversity, including age and cultural and social background, as having greater vital significance for their organisation than their male colleagues (see Figure 4).

Directors who say the following factors are very important

Female directors were notably more likely than male directors to say that certain attributes are very important to achieving diversity.

Figure 4: Men and women have different views of the attributes that are important in achieving diversity.

Overall, women rate the importance of diversity more highly than men and are convinced that it has a major impact on the work of the board. As Figure 5 shows, 82% of female directors believe that diversity enhances company performance, compared with only 54% of their male counterparts.

Percentage of directors who responded very much or somewhat that gender/racial diversity has:

Figure 5: Diversity is rated as more important by women board members than men.

Switzerland lagging but picking up speed

Switzerland lags way behind the international field in terms of gender diversity. Even though equality is enshrined in the constitution, only 16% of board members at the 100 largest Swiss companies are currently women. Women account for a meagre 6% of executive managers.

But Switzerland is also one of the few countries in Europe with no regulation – although this could be about to change. In June 2018, the National Council voted by a wafer-thin majority to back a mild form of advancement for women as part of the reform of company law, approving gender-specific quotas for management and the boards of listed companies employing more than 250 people. After a transitional period, women will have to make up at least 30 percent of board members and at least 20 percent of the management. The legislators don’t plan any sanctions, but companies that fail to meet these quotas will have to explain the reasons in their corporate governance report and present the measures planned to improve the situation. The dossier is currently with the Legal Affairs Committee of the Council of States.

The good news is that Swiss boards aren’t remaining idle when it comes to diversity and the percentage of women on boards. In September 2018, the Handelszeitung newspaper published a study of 180 companies, including the 150 largest listed entities and the 30 largest unlisted employers, which revealed that one-fifth of board members are now women. The percentage of women among newly elected directors rose from 28% in 2017 to 37% in 2018.

SMI companies present an equally positive picture, with the percentage of women board members increasing to 24% in recent years. Proxy advisor Actares has expressed its pleasure that women make up half the nominations for board vacancies. At present six of the 20 companies in the SMI meet the 30% women’s quota demanded by parliament.

Horses for courses

Diversity at the highest level of governance is a precious asset for any company. But making the board more diverse doesn’t just mean discussing the percentage of women. To achieve the optimum mix of skills and experience, it helps to ask what phase the organisation is at. If you’re going for non-organic growth, for example, it might make sense to get M&A know-how on board. In a turnaround phase, a knowledge of change management and restructuring is useful. If your wish list includes new markets, new customers or a sales organisation on a new continent, it helps to have the corresponding geographic and intercultural experience on the board. And if you’re establishing a business model on the basis of new technologies, you need people with an affinity for and ability to handle the fast-moving worlds of cyber, crypto, and the like.

If you’re aiming to boost gender equality in the long term, you need a properly functioning career pipeline. For example, there should be enough women who are able to advance from lower levels of the hierarchy. This requires structures that are up to handling the career trajectory of women wanting to combine a career with family. It also requires an effective HR policy.

In a nutshell

Diversity is a key topic, with both economic and social implications. Diversity boosts the performance of the board and the company as a whole. Public and regulatory calls for diversity are forcing boards to reflect on their attitudes, set a course, and charge the management with taking effective steps to make it happen. In this debate, a company has to decide how to attract and retain the best mix of talent at top management level. This process needs time: time to recognise that diversity is an enrichment; time to make decisions and create the appropriate structures; and time to establish operational measures and working models. To this extent, diversity is a strategic, cross-generational item on the board agenda that has to be dealt with regardless of guidelines and quotas.

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