Lily white corporate leadership is a business risk

Ujuh Reporter

After all, South Africa is not alone in its path to cleanse itself from the historical burden of lily white corporate leaders. Across the globe there is marked rise in voices that call for diversity in business leadership.

The point is well made in statements made by Deloitte director, Dr Johan Erasmus, on the matter of board diversity.

To remain relevant in an increasingly competitive world, says Erasmus, directors cannot ignore the crucial role that diversity plays in governance, particularly in the boardroom. “Companies that fail to dip into the ever-deepening talent pool of diverse, well-educated and ambitious individuals run the risk of limiting value creation, compromising sustainability and undermining their long-term competitiveness.”

Today, diversity in the boardroom is not merely a conversation about having the right gender and ethnic mix on boards. It is a dialogue that extends to having the optimal mix of skills, expertise and experience amongst board members as well as the consideration of factors such as the age, geographic location and independence of members.

Erasmus says having the optimal mix of skills, expertise and experience is critical to ensuring that the board as a collective is equipped to guide the business and strategy of the company.

Age diversity, specifically, is often overlooked in the boardroom. Board members tend to be older, as many boards equate age with experience. While older members do provide a wealth of experience, younger directors introduce a fresh perspective into the boardroom, particularly in this age of disruptive innovation.

In addition to making sense from competitiveness point of view, there has been an influx of regulatory reforms that encourage diversity in the boardroom, specifically gender diversity. The European Union (EU) introduced a Directive on improving the balance of males and females among non-executive directors of companies listed on stock exchanges by setting a binding minimum target of 40% females among non-executive directors.

Gender quotas have also been promoted via legislation in many European countries. In 2005, Norway became the first country to introduce board gender quotas when the Norwegian Public Liability Companies Act was amended to require 40% representation of both genders on boards. Similar law reforms have since been adopted in Spain, Italy and France.

One of the largest influencers of diversity in South Africa has been Broad-Based Black Economic Empowerment legislation. It embodies government’s efforts to empower historically disadvantaged people, particularly black people, women, the youth, the disabled and people from rural communities.

With regard to independence, mechanisms such as the Companies Act, King III and the JSE Listing Requirements include requirements to bring the objective view into South African boardrooms, for example, King III recommends that the board should comprise a balance of power, with a majority of non-executive directors, the majority of whom should be independent.

Erasmus says shareholder activism has also increased significantly in recent years. “Shareholders are more vocal about the changes they want to see in a company’s board composition.”

The principle argument in favour of a diverse board is the wide range of perspectives each individual brings to the boardroom table.

Erasmus says a diverse board better understands its customer base and the environment the business operates in. “As a result, the board is better placed to seize opportunities for innovation, which ultimately creates value for the business.

“Having a wide range of perspectives in the boardroom also means guarding against group-think and silo thinking. In addition, incorporating independence into the boardroom brings an unbiased view distinct from that of shareholders and management, which provides reassurance to external parties that the company is being run in an effective manner.”

Erasmus says while there are some challenges associated with having a diverse board, many of them can be viewed as temporary. “They will be far outweighed by the benefits of having a rich melting pot of diverse perspectives around the boardroom table.”

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