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 Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.