A diverse board can boost accountability. Photograph: Getty Images.
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With so many measures and initiatives, why is boardroom diversity taking so long?

Diversity in substance, not just in appearance, brings benefits to boards.

There has been plenty of talk about the need for greater board diversity in recent years. With so many measures and initiatives being touted, why is it all happening so slowly?

Diversity should be an attribute of a balanced and capable board and, in itself, is not a new concept. However, calls for more diverse boards have grown louder in the wake of the 2008 financial crisis. Against a backdrop of bank failures and bail-outs, concerns about executive pay and aggressive tax planning, the public have looked at company boards and taken the view that their shortcomings might be connected to a lack of diversity in board membership. And it is not just companies. Other bodies, including governments, have faced similar scrutiny. Board diversity has become an issue for mainstream governance.

But how does diversity improve a board, or company's, performance? Corporate governance has historically emphasised the need for a balance between executives and non-executives to ensure that boards have the skills, experience, independence and knowledge required to enable them to carry out their responsibilities effectively. This might not be enough. To achieve long-term business success, companies have to take a wider view on how they interact with the markets in which they operate, and meet a range of sometimes conflicting responsibilities. They have to achieve a business purpose, behave in a way that is acceptable; meet legal and regulatory requirements and be accountable for their activities. Having a diverse boardroom can help.

For example, it helps for the company to be in tune with its key internal and external stakeholders, and see business opportunities and threats through their eyes. Board diversity can help boards understand their customer, supplier, employer and other relevant perspectives better. As companies become more international, this adds another dimension.

In order to behave in a socially acceptable way, the board may wish to consider the message they send about their company - if members look like each other rather than like society, for example, this can undermine people's confidence. Furthermore, diversity encourages rigour in the boardroom. Although a tightly knit group of like-minded people, with common experiences can take decisions quickly and efficiently, there is always the risk of groupthink. The problems here are well documented. An over-riding objective of sticking together may also mean that common limitations and biases go unchallenged. Better decisions are made by a board with members who are prepared to consider a wider range of alternatives.

This is easier said than done. We know that there are practical challenges. A board cannot accommodate an endless number of people representing different stakeholder groups in order to mirror society at large. Also, having a diverse board does not automatically mean that diverse viewpoints will shape company behaviour and decisions. Board members need to work hard to enable a robust process that allows different views to be expressed, heard and considered. They will still need to work as a team, serving the interests of the company and sharing responsibility for its decisions. It will take effort and commitment by board members to develop a mutual respect for each other and to recognise the value of an open exchange of diverse views.

The pipeline issue is also receiving more attention today. Building a pool of diverse and talented individuals across an organisation is important and often more difficult than introducing diversity through board appointments. Some challenges have deeper roots in institutions and society more generally, and cannot be resolved by a company alone. For example, if certain groups are fundamentally disadvantaged within the education system, it will be difficult in the short term for companies to identify suitable members of those groups for board positions, or to make sure that they are properly represented in the company's talent pipeline. But then again, the diversity debate is giving us an opportunity to raise public awareness of such issues.

There is no one-size-fits-all answer to the question of board diversity, and a company needs to reflect on its business purpose, the society where it operates and the stage of development it has reached. It will also take a lot of effort for companies to find ways to take account of many different perspectives, while keeping the board a practicable size. Diversity in substance, not just in appearance, brings benefits to boards.

Jo Iwasaki is Head of Corporate Governance at ICAEW.

Photo: Getty
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After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.