Board Diversity and Effectiveness

Diversity is a powerful force that has the potential to transform societies and economies. In 2020, the FRC commissioned the London Business School Leadership Institute and SQW to research board diversity and effectiveness. The outcome is the ‘Board Diversity and Effectiveness in FTSE 350 Companies’ research report, published in July 2021.

The report is the result of a range of qualitative and quantitative research methods: including interviewing 75 board members representing 25 companies, plus statistical modelling and data analysis from the boards of the entire FTSE 350. Most studies look at public information on boards and infer what is happening. This study has allowed us to enter the boardroom and gain information about how boards are seen to be interacting directly from Chairs and directors – and the findings show that behaviour matters.

Key Insights

• Boards need to ensure they are not assuming that there is alignment between board members on the definition of diversity on the board.
• Almost all FTSE 350 companies have benefited from increased gender diversity and the greater representation of women in the boardroom is reshaping board culture and dynamics.
• The correlation between success with increased gender diversity and success with increased ethnic diversity is zero – what works for one does not necessarily work for the other.
• There is no ‘silver bullet’ that will guarantee success from greater ethnic and gender diversity in the boardroom. Those boards who invest time and effort in building the capability to work with multiple aspects of diversity reap significant benefits.
• Chairs are a critical component to unlocking the benefits that all types of diversity can add to boardroom discussions and insights. They need to be good listeners, as well as action-oriented.
• Cultivating a learning and development mindset in the boardroom helps directors get over their fear of making a mistake, and into creating a more inclusive board culture.
• Boards should address the development needs of the board as a whole with a view to enhancing its overall effectiveness as a team.
• Ensuring process conflict does not turn into personality conflict is one of the key strategies for developing a functional diverse board.
• It is critical that boards discuss as a collective, and reflect individually upon the question: ‘What are we/am I doing or not doing that is preventing our/my commitment to diversity being fully realised?’
• A multi-disciplinary approach to board evaluation and board development is critical to help the board create the skills, mindsets and competencies to tackle the findings and recommendations of the report.