Diverse boards improve corporate culture and performance

There has been a step change over the past decade with UK Listed company boards becoming more diverse than ever before, primarily as a result of the Hampton Alexander review and more recently the Parker review.

The research, Board Diversity and Effectiveness in FT350 Companies, published today by the FRC in conjunction with London Business School, Leadership Institute and SQW, found that the effort to diversify boards pays benefits in terms of boardroom culture and performance. To maximise these benefits boards should recognise that change takes time and that diversity without active inclusion is unlikely to encourage new talent to the board.

The main findings of the research concluded that:

• It is the responsibility of the Chair of a board 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 itself 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

Sir Jon Thompson, CEO, FRC, said: “The FRC wants to see companies which thrive in the long term and both benefit the economy, society and reflect its make-up. I want to see boards invest time and energy in making diverse appointments not to achieve a target but because it will have a positive impact on their business. The UK Corporate Governance Code makes it clear that boards appointment should promote diversity and we want to see nominations committees reporting on progress.

"I am pleased that this research supported the need for companies to set clear targets and report against them as a means to improving diversity, this is included in the Code but in many companies only set targets for gender or to a lesser degree ethnic diversity. We support the researcher’s proposal that nominations committees should be diverse and have a mandate to work with executive search firms that will find talent from diverse backgrounds.”

Dr Randall S. Peterson, Academic Director, London Business School Leadership Institute and Osman Anwar, Director, SQW, said: “Board diversity should be a priority for every organisation. Successful boards care because they want to perform as a team in service of their organisation, and in service to the world.

"Diversity takes many forms. The findings of the report remind us what is at stake: diversity is not just a numbers game with regards to who is on the board, how board members interact really matters.

"We hope this report will stimulate new thinking and action on how all groups can genuinely feel included and supported at the ‘top table’.”