Why diverse boards are good for us, and good for New Zealand

Institute of Directors chief executive Kirsten Patterson on the upsides of diversity in the workplace.

Damien Grant’s column has created quite the debate. 

His column last week used a couple of academic studies to argue that there is no direct correlation between women being on a board and the performance of that board. The conclusion was that there is no direct correlation, then we don’t really need to create diverse boards.  The current level of representation is high enough, Mr Grant says, because it reflects the current demand from women to sit on boards.

I’m not an academic so I’m not going to delve too far into the academic side of that argument. The two aggregated studies make me curious to their methodology, as both consider a number of academic studies across more than 30 countries to conclude whether women on the board contribute to a rise in productivity. I wonder how you compare like with like across countries with different cultures, productivity and growth? How does looking at publicly listed companies only reflect a country like ours where the majority of businesses are SMEs?  How do you ensure that all these different studies with their differing definitions of diversity are comparable? 

It seems to me that the smaller studies on businesses in similar countries are probably a better example of the impact of diverse boards on New Zealand business.

I do know though that the current number of women on New Zealand boards should not be read as an indicator of the level of ambition. Women likely contribute a lot more to boards than we can currently quantify in New Zealand because we do not have statistics that show us the entire landscape of who sits on them. 

Much of the debate on women on boards in New Zealand focuses on just the publicly listed companies, where women make up only 19% of board composition. These figures do not include women’s contribution to iwi boards, school boards, not-for-profits, SMEs and the numerous other organisations that support New Zealand’s economy and provide essential services. What this tells us is that women are interested in governance – they just do not always make it onto the boards of publicly listed companies.

Diversity on boards is important because it helps to improve culture. This is essential in an environment where the Fourth Industrial Revolution and the disruption it brings to our current ways of working is creating an environment for organisations that are marked by volatility, uncertainty and change.  Companies are no longer competing against other organisations within their towns or cities, they are competing on a global playing field where technology enables commerce to operate across boards. 

To navigate these challenges, many organisations have looked to how they might be able to encourage innovation to allow their teams to be agile, nimble and adaptive. This drive can be seen in the tech sector, where its leadership in driving productivity and performance through culture is challenging traditional models of work.  

Diverse boards set the tone from the top and help to create open, innovative and participatory cultures where people feel free to speak up and talent can be identified and nurtured without unconscious bias.

Research from the Centre for Talent Innovation shows that companies that prioritise diversity in leadership are 45% more likely than publicly traded companies lacking it to have grown market share in the last 12 months and 70% more likely to have captured a new market. This is because modelling inclusive cultures right throughout the board and management creates a flow on effect throughout the organisation. It enables cultures where everyone is able to speak up and be heard, allowing for new ideas that would not have otherwise reached management. In many industries, getting technical knowledge from the person doing the job or a different perspective can be the difference between sticking to a system enforced from above or generating new efficiencies.

Diverse boards make us more likely to identify and nurture the talent we might not have otherwise seen. Numerous double-blind studies have shown that when gender is shown on a job application, the female candidate is less likely to be chosen than when the name is not available. When leadership reflects a diverse group, it means that this unconscious bias is less likely to be taken into account and a true meritocracy develops where stereotypes on particular groups do not drive decisions.

Encouraging diversity does not mean tokenism or promoting diversity over skills. It also does not mean disregarding the contributions and expertise of our male directors, many of whom have acted as important allies in cultural change.

We know diversity is good for our workplace cultures. There is research that shows it increases employee engagement, customer service and satisfaction – which all help drive company performance and deliver on the board’s responsibility for delivering long-term value.

Women constitute 50% of our workforce and 50% of our consumers. It makes sense that we encourage initiatives to increase their participation on boards. After all, if we relegate talent and ambition to one gender, one age or one ethnicity we might miss opportunities to promote our best talent.

Kirsten Patterson is chief executive of Institute of Directors.

This is supplied content and not commissioned or paid for by NBR.


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26 Comments & Questions

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How about we create boards of competent Directors regardless of gender, age or race?
Wouldn't that be a fine thing?

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Or who their mates are.

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Perhaps that is really what is being suggested. Do we really suppose that current boards are entirely selected on merit? And if we are selling to a market that is highly diverse, would it not be wise to have a diversity of perspective and experience on the board?

Talking to a professional director recently, he noted that things have changed from the bad old days of 20 years ago when 90% of board appointments were made via tapping a mate on the shoulder. He reckons this has changed...and it's now only 75-80% of them made like this.

The BNZ's recent work in increasing diversity in its workforce highlights a further problem that's flowed through to the boardroom. Banking boards have been slow to become more heterogeneous because the workforce that enters at the base level has been homogeneous - i.e. many of more diverse backgrounds have been put off entering the workforce by structural aspects at the front end (which they've been addressing). Addressing this will naturally pay dividends later on.

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Intrigued that cheif executive of the institute of directors would announce that not an academic and therefore unable to assess methodology of studies quoted previously, and then immediately dismiss them due to supposed methodological concerns...before repeating generalised statements like “diverse boards generate open culture” without citing any evidence for that.

My hunch is that open culture may generate diverse boards, not the reverse.

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Being a director of a public company board requires a totally different skill set than a director of an Iwi or quango board It really does require a great deal of experience in operating a company,, risk assessment, employment, tax and many other laws. Gender is absolutely irrelevant as either sex can build up these talents and be able to form good judgement. Fact is not so many women wish to devote their lives to business as avidly as men. If they do then they succeed. However business is not about having a social function. The shareholders pay the board to ensure the highest possible , lawful, return on their investment.

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This is a shocking case of "I don't believe in science or statistics" and "the facts get in the way of my argument so I will ignore them and state my view"

Coming from the IoD makes it worse. Your opinions are masqueraded as facts without support or backup. Your opinions may be perfectly valid facts, but please make an effort to prove them correct if you are going to debunk any study that tries to use statistical analysis.

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A board needs to be able to do its job and the skills and experience to do that is well understood. James Surowiecki in his wonderful book The Wisdom of Crowds provided the evidence that a diverse group of people will outperform the most expert amongst them provided that each person brings private (not known to other members) information to the table. My experience sits with this position and I have learnt that diverse boards perform better than homogenous ones.

Diverse boards that lack the skills and experience to operate of course will fail. So anything that limits access to these two critical elements in selection of board members will drive down board quality. Diane Smith-Gander has written one of the best pieces that address this position and you can read that piece on https://www.theresolution.com.au/@diane-smith-gander/2017/06/18/109415/w....

I agree strongly with Diane that we need to focus more on providing opportunities to acquire skills and experience for all under represented segments of our board community and increasing the number of female senior executives is much more important than any focus on quotes of women around the board table.

The Powerhouse Ventures board is keen to build up the pool of potential board members for ourselves and for the boards of our portfolio companies and we will have a strong eye for the many aspects of diversity not just gender diversity.

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Wow, coming from Powerhouse Ventures, arguably one of the worst performers on the ASX, that is beautiful ! Powerhouse is a great example of how some boards are hopeless.

Russell , read Chris Corrigans article in last weekends Australian about female directors and independent directors. You might learn something !

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They are in a race with Crop Logic for worst place.

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I agree it would be nice to see more diversity on boards but I sincerely hope that you aren't going to employ people on the basis of their gender or ethnicity......I believe that is illegal.

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Wonder what we can learn from looking at the boards of Wynyard and CBL.

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This is actually a good article and a good position by Kirsten with one addition (I’ll leave till last). Academic studies show no correlation between board gender diversity and company performance. McKinsey has done its own sample study, refreshed this year, that shows gender diversity in executive leadership and ethnic diversity at board level do lead to better performance. Plus some country and industry variations. McKinsey’s study is more limited and less rigorous than the peer reviewed academic papers but let’s take the output at face value.
Effectively what this all comes down to is that unbiased promotion of talent leads to better results. And in an unbiased world we would expect to see better diversity in company leadership and boards. What everyone seems to be getting their undies twisted about is how we get there.
Even if you accept the McKinsey study results, this isn’t support for quota based programs, and if you google around Harvard has an excellent paper on what does work to actually improve diversity in companies, and it ain’t command and control and quotas - this is actually proven to be counterproductive.
I don’t think women and other groups actually want quotas either. No one wants to be the token appointee and have to deal with the real or perceived lack of respect that goes with that. And we have all been in organisations where quotas or “projects” are applied and they end up promoting and embedding mediocrity and the good talent then tends to walk; often this is also talented women leaving who unfortunately can’t themselves move up because the “project incumbent” isn’t going anywhere as the organisation has staked its reputation on showing it has met a diversity tick box and not fired their token.
As I read Kirsten’s article she isn’t advocating quotas. It sounds like she is really proposing better active targeting and fostering of diverse talent that can be groomed for board roles. I applaud this. Actually I’d like to see the IoD put its money where its mouth is (this is my addition) and say offer free membership to new female (and other minority) aspiring directors and enhanced training and mentoring for them, plus board internships with leading companies etc to build the pool and foster their ambition to take the roles.
I’d also like to see shareholders demand more from boards and companies in terms of understanding what they are really doing to remove barriers to talent rising, no matter where it is from. And make sure it’s not just tokenism being followed.

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I would like to share with the authentic and accountable contributors to this conversation who have made intelligent and substantive contributions that as you have seen here people who are afraid to identify themselves and who always attack people instead of substance in any discussion I always ignore. I took on the chairmanship of Powerhouse Ventures because it aims to achieve a most important objective for both the Australian and New Zealand economies which is to commercialise science by building companies that can win their global category. I have been in the role for 11 months and have made significant changes to both the strategy and operation of the company.

I have issued an invitation to all these anonymous trolls to call our office and meet with me to hear their wonderful ideas of actions they would take to achieve a better results but it is unsurprising not one these cowards has taken up my invitation! Hence I ignore them and make the best contribution I can to these discussions and to the companies I invest in and lead.

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Russell, according to ASX announcements, you were appointed a director on 28 February 2017. The market price of PVL at that date was 80 cents. On Friday the shares closed bid at 13 cents, offers at 16 cents.

They are the facts. Here is an idea - replace the initial directors that floated this company. Just trying to be constructive!

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As an aside, I do recall reading in HBR or some such a while back that female CEOs are more likely to be appointed to companies that are already on the way down. E.g. Yahoo, HP etc. This has an unfortunate effect in that those who made the bad strategic decisions to put the company on the downward trajectory get to shrug off some of the blame while the reputation of female leadership suffers.

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I’d like to know the diversity of shareholders in these companies. If women want more female directors the easiest way to achieve it is buy shares.

Sadly there’s a hell of a lot of women out there training through rather pricey director courses who view being a director in no matter what insignificant non-profit or even poorly performing small listed company as some sort of glorious achievement in their lives to be celebrated rather than what it really is in this day and age, a complete burden.

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It doesn't really matter if you're a man or a woman on a board, because both are capable of doing a bad job of it.

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As another contributor has intimated, it ls not really on boards where "diversity" ( best talent able to read current trends and assess multi options and execute), is that crucial. It is in the exec team where that impacts performance. Boards of bigger companies do not usually contribute that much to operations, business planning, and getting the job done. They tend to rely largely on the CEO and other execs to present info, options, and recommendations which they will then assess, question, and approve / not approve and the exec team execute. Boards tend to spend time on compliance, risk assessment, monitoring execution by execs, etc. Most board members will not have the specific skills and experience to understand in detail the operational side, rather focusing on a higher level governance role.
I expect that any perceived correlations between board composition and company financial performance is coincidental and the conflicting "studies" tend to confirm that. With a huge number of possible influencing variables the studies seem to be exercises in justifying preconceptions more that science.
So since execs are largely the face of business, create its culture, and are responsible for performance that is where those who want to make change should focus, and to get an exec position you have to have a track record rather than a skin colour or particular set of chromosomes. It seems to me that there is plenty of progress being made in that area, as more women and other "minorities" come through university, and move up the corp ladder, ( see gender ratios in law and commerce grads over last 20 years). If they want to, these people can and will make their way onto boards based on their exec track records.
It seems to me that board composition has become something of a fetish, for certain barrow pushers, while having little relevance to the reality of how business of society work. One might observe that women could prefer more communications based roles such as marketing and HR, and perhaps do not measure their success by being part of a relatively boring and less influential board environment. Just as men seem to have less interest in becoming primary school teachers and other professions. One does not hear much call for diversity in the gender of primary teaching where the ultimate influence on society is probably bigger than board composition. One might expect a bit of consistency in that respect.
So it seems to me that the board argument may be more an expression of a "political" itch or trojan horse, than an imperative to improve business performance.

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It's all a bit of a rort anyway. I remember John Key telling a reporter that after he left politics he would be going on the board of a few companies. Obviously been told that there was a place for him months in advance, just because of who he was, regardless of whether or not he would have been the best person for the job or not.
like I said it's all a rort.

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Works both ways though with women appointing their women mates to boards - particularly in the public sector.

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A few rational and experienced comments above. But lets stop the train. Management manages the company. Boards of Directors provide Direction and have a legal governance role to the shareholders. Thats it. All the ho-ha after this stops. Hire and make accountable the best management team and if they are male or female. representative of the market, bring expertise, etc, thats it. How they get there, be they male or female is another topic linked into education, immigration, skills programs, luck etc. Forced allocations at the management level of companies cannot be a good thing as they can distort in all directions be it by gender, religion, race or status. So lets get back to the Board. The Board has to be formed to provide diversity of opinion, experience and challenging the management. The members of a Board also provide independent validation for remuneration, audit, risk policies etc.. If it doesn't have these skills, its sub-optimal. I think most NZ and the listed ASX spin-offs are not doing their job if they rubber-stamp management decisions and should often seek expert advice. Being a Director or a Chairman should; be viewed as a dismissable position if you are not accountable, visible, active, committed to the shareholders, oversee management (but don''t manage) and bring value or dare I say, lose value. Its up to the IoD to help train female and male directors to be better directors and so increase the mix of female directors. My only other comment is how few NZ companies have off-shore or international directors and so suffer from not tapping into complementary expertise and knowledge of markets, practices etc. This may be more of a structural bias than gender and needs to be fixed.

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Well said Michael. If a board is just rerunning the management committee the board is not doing its job. My experience is that board members learn best by interacting with their peers which is why I founded The Resolution in April 2017. Providing opportunities for directors to see other highly experienced and knowledgable directors dealing with difficult and complex matters is embraced by our community. We have 186 directors attending a board hypothetical on Class Actions on 7 June in Melbourne. By showing these top performing boards in action highlights many of the important distinctions you have called out above; management/governance, accountability, diversity of opinions, challenging management, independent verification, structural bias.

What I have learned in my career as a founder/CEO and as board member is that boards add the most value when they focus, (as you outlined above Michael), on Direction. People who haven't been there just fail to understand it takes time to change direction or to establish and execute a new strategy. The most important role of a board is to hire and fire the CEO. When you have the wrong CEO in a company, the board, particularly the chairman, has to work with that person to protect their well being but oversee a professional process to replace them. A radical change of strategy almost always requires a change of CEO and at Powerhouse we made that change on 25 August 2017. We are 9 months into the new strategy of focusing on accelerating the pathways of our investments, measuring our impact, working with the good CEOs and good companies and back them. We have been brutally transparent and have we made mistakes of course we have but we are getting more right than wrong.

If anyone is interested we can provide a URL for you to watch the videos (Cybersecurity, Firing a CEO and soon Class Actions) and we have established a LinkedIn Group so that those who can't attend our Melbourne based events can share their views with our community of 5,500 and growing board members. The website is www.TheResolution.com.au where you can register.

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The only form of diversity that matters is the diversity of ideas and experiences.
However this requires some deep thinking around an appointment It's much easier instead to look at a lineup of candidates and assume that anyone who isn't a specific gender or race automatically has different ideas or experience. In a way, it's kind of the most presumptive concept out there - just because someone looks different, they must act and think differently.

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A study into the bias against women founders in the Venture Capital industry an interesting observation was made. The bias was equally by male VCs and it was from female VCs. The study looked at the language used etc.....many of the particiapnts did not even recognise what they we doing.

I suggest a lot of "female" directors are just as likely to have the same views as those of their male counterparts because of the conditioning that occurs in the "corporate" system.

So absolutely agree it is diversity of thought, experience etc that is of real value. The problem is that like Groucho Marx said I would not like to be a member of any club that would have me as a member.....who wants to be a Director given that most are only ticking boxes and meeting up with mates.

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Ahh yes the "bias Bandwagon", i am hearing more and more reference made to "bias"......as i mentioned to one of my colleagues ( i have a C-suite role) the connection between implicit bias, unconscious bias and biased behavior has yet to be proven at any level even remotely necessary to be used for example in a courtroom i cannot adjudicate on things that may be in peoples heads that i dont know about because i am not a mind reader.

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I think you are confusing the issue by conflating two different things. Diversity and gender equality are two different, separate issues, they are not the same thing.

Diversity or a diverse board is not about the ratio of men to women on the board, with the most diverse boards having a 50:50 split. That issue is gender equality, with a 50:50 board of men to women being the most gender equal. Diversity is more than that, it includes gender diversity AND the inclusion of other groups from within society, such as people from different races, cultures, ages, sexualities, religions etc. It is a much broader more complex and much harder thing to achieve than just having a few more women on boards.

In fact, you could quite easily argue that having greater gender equality on boards does not make them more diverse, if the women come from the same ethnicity, culture, went to the same schools, have the same qualifications and the same business, corporate, employment and professional history as the men.

This misunderstanding between board gender equality and board diversity confounds debate on this issue terribly. I think intuitively greater board diversity leads to better performing boards and better run more profitable and successful businesses as ultimately the leadership reflects the shareholder, community and customer base the company serves. Greater board gender equality, on the other hand, I'm not so sure? I'm not convinced that there is something inherent to the state or constitution of being a woman or a 'women's experience' that somehow makes them better at business than men. Different in some areas for sure, but different doesn't mean better.

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