Why gender diversity is about more than equality

A recent 12-country study of 393 companies found that women are still largely outnumbered in the non-executive director community, but found that the gender mix is improving.

By Carl Sjostrom

(Photo By Progress isn't exactly rapid, but we are seeing signs of positive change. Photograph: Getty Images.)

Promoting diversity is not only morally positive, it makes perfect business sense. To draw on different backgrounds and experiences is to challenge the notion that one culture, behaviour, structure and practice is the right direction to take. It’s a healthy, constructive way of doing business that can deliver greater productivity and profitability

“Diversity” also takes many forms, and is never far from public scrutiny. Just recently, the World Economic Forum (WEF)’s annual meeting in Davos suffered a media outcry at the lack of women delegates, despite the forum’s best efforts to attract a diverse pool.

WEF’s purpose being to improve the state of the world by helping shape the international business agenda, it’s important that the ideas and issues as part of it are mixed – otherwise it quickly becomes a club where people think more and more alike. It’s exactly the same situation within organisations today. While short-term objectives can often be met by a group of similar people (who are naturally aligned and don’t need to be taught how to operate together), generating sustainable, long-term success requires more. Effective boards and teams need diversity for innovation and time and management to make the different opinions workable.

The gender discussions at Davos are mirrored in the Hay Group’s recent report Non-executive directors in Europe 2013, based on a 12-country annual study of 393 of Europe’s largest-quoted companies. However, while the study shows that women are still largely outnumbered in the non-executive director (NED) community, it also highlights how the gender mix is improving. In the last three years the proportion of male board directors has dropped from 87 to 80 percent. Within this, some countries are moving faster than others. Italian companies, for example, though they remain bottom of the league for gender diversity, have made comparatively great strides, moving from 94 per cent male directors last year to 89 per cent this year.

While the NED community is not responsible for running firms, they are highly influential in terms of challenging and contributing to overarching strategies and in ensuring ethical standards of conduct are met in the pursuit of corporate objectives. It’s vital, therefore, that they represent a broad range of thinking which is often acquired through a more diverse group of people.

However, while women are securing more NED roles, the study shows they still earn less than their male counterparts. Two years ago the average pay gap was seven per cent. Last year it was nine and this year it has risen to 10 per cent. How can this be? Well, NEDs are paid fees for being members of the board, and typically get extra fees for chairing or belonging to other board committees, such as audit, remuneration and nominations. Women are even more underrepresented on these committees than they are on the boards (more than half of European companies don’t have a single woman on the audit committee, and the same holds true for remuneration committees). As a result, they end up earning less than their male peers and, crucially, the committees driving much of the board agenda do not benefit from diverse viewpoints.

Gender might grab the headlines, but diversity is a far broader issue. Boards are becoming diverse in a number of ways, driven by the reality that we are all getting more and more international. Fewer directors, 66 per cent at the median, are from the same country of company listing or headquarters; a fall of three percent on last year. Countries like Switzerland, the Netherlands and the UK, which are very open to international trade, often have half the board with an international profile. We’re talking gradual change here, but this does show a movement towards an increasingly healthy combination of ethnic, cultural, educational and professional backgrounds being funnelled into the leadership, strategy and direction of organisations.

So while progress can hardly be described as rapid, and the gender pay gap still needs bridging, we are now seeing signs of change. Just as WEF is likely to take a hard look at how it attracts a wider audience at Davos in 2015, companies need to consciously consider and examine the formation of its teams. It won’t always be plain sailing – different views naturally lead to disparity and debate. However, the potential gains in terms of scrutinising behaviour in business, challenging perceptions, curbing excess in certain sectors and encouraging wider change across companies to improve working life, reward and benefit for all, are well worth the effort.