Entrepreneur

Boards Need To Up Their Game In Terms Of Cognitive Diversity


Diversity has long been recognized in terms of its importance to things like innovation and creativity, with research from MIT showing how cognitive diversity improves the profitability of organizations.

Such diversity can have costs, however, as paper from Wharton illustrates.  Whilst there are clear advantages to diversity, if a team is too diverse, the costs involved in coordinating the team outweigh the gains. It’s important to remember that generating ideas is not sufficient if those ideas aren’t then implemented widely.

The study revealed that there was a particular advantage accrued when organizations assembled teams with high levels of what they refer to as ‘across team diversity’. This is when a team may not be that diverse when you explore its individual members, but they are nonetheless diverse when compared to the organization as a whole.

“We came from the financial and tech worlds respectively. It is our diverse backgrounds, professionally and personally, that help us combine the skills and build a solid growth path for a successful start-up,” Armand Lapotre and Cristina Avramov, founders of tech enabled survey startup GrapeData say. “We truly believe that this diversity of experience has been fundamental to our success as we haven’t become bogged down in how things “should be”. It’s certainly not easy to bring that diversity together, and does require work, however.”

Constructive disagreement

These challenges involved in ensuring diversity is helpful rather than harmful illustrate the importance of creating the right environment and culture for diverse teams to operate in. Research from the University of Bath argues that a culture of “constructive disagreement” is key.

The report highlights that while welcome progress has been made on the ethnic and gender diversity of organizations, and especially in leadership roles, they can still succumb to groupthink when people share excessively similar backgrounds and perspectives.

“Cognitively balanced teams take less time to solve problems,” the researchers explain. “Teams who can consolidate their knowledge and are willing to learn new things were found to resolve problems quicker.”

The best decisions

The research was conducted in partnership with the financial firm Scottish Widows, who through investments in many of the world’s companies has a vested interest in those firms having the best decision-making processes in place. The researchers conducted a thorough literature review around cognitive diversity alongside interviews with directors, board chairs, and board recruiters.

“Representation from across society has multiple benefits, which include inspiring future generations, designing products and services to suit the needs of everyone, as well as making sure some groups are not left behind,” the authors say. “There is no doubt that representation of a broader spectrum of society adds value to the workplace.”

To achieve this, the authors recommend organizations examine their recruitment criteria with fresh eyes to examine which skills are really essential and indeed which channels people tend to get recruited via.

Then, once people are hired, chairs need to work to create a culture in which challenging and difficult questions can be raised comfortably without fear of reprisals in any way. As I explained in a recent article, this isn’t the case far more than anyone would like and is especially problematic for the kind of minority groups that are seldom represented, whose ideas are so often dismissed, and their contributions spoken over.

A good approach is to create a culture of amplification, especially of the ideas of those in minority groups so that not only are their ideas heard but they are encouraged to speak up, even when what they say may be uncomfortable.

Put to the test

The Bath researchers believe that organizations can test whether such a culture exists relatively easily. For instance, they suggest that boards can start with tests of the personality and working style of board members, before moving on to have honest discussions about just how well the board is functioning.

“As our report outlines, the best decisions are made when there is a range of different perspectives and styles of thinking, which embrace constructive challenge and disagreement,” the authors explain. “That’s why we want to foster a culture within the boardrooms of the companies we invest in of being comfortable with the idea of being uncomfortable.”

Unfortunately, organizations have some way to go before this is achieved, as recent research from the University of Delaware highlights the glass ceiling that still prevents women from reaching the top boardroom positions in countries around the world. The study finds that even when companies include women and/or racial minorities, these people are less likely to have any of the key leadership positions on the board, with this so even if they have stronger qualifications than their white male peers.

“While specialized skills such as prior leadership or finance experience increase the likelihood of appointment, that likelihood is reduced for diverse directors,” the researchers say.

Struggling to diversify

While the diversity of boards has risen in the past 20 years, the paper highlights how women and minority directors have still struggled to obtain the loftiest positions, such as chairman of the board, lead director, or as chairman of one of the four major committees (audit, compensation, governance and nominating).

The researchers examined a sample of nearly 20,000 directors from the boards of 2,254 US firms from 2006 to 2017. The assessment found that diverse directors typically had greater credentials and experience from both outside and inside the firm than their white male counterparts. Despite this, they were less likely to be appointed to the key board positions.

The team then dived further into the data to explore the specifics of how experience influenced matters. They found that while previous chairman/lead director experience meant that white males were 10.5% more likely to be appointed to such roles, for women or minority people, the chances were only improved by 6.1%.

“Our paper raises important questions about board inequity and lends justification to several recent public concerns on the issue,” the researchers say. “While most concerns raised by advocates have focused primarily on board composition, we point to evidence of inequity even after these directors have been elected to the board.”

Breaking the glass ceiling

Obviously, qualifications do not explain the discrepancy in positions obtained, but the researchers put forward a few possibilities. For instance, diverse directors may actively choose to serve on more boards rather than commit resources to serve in leadership roles on fewer boards. They may also choose not to pursue such roles, or even be less effective in them.

These possibilities were examined, with no real evidence existing to support any of them. For instance, they found that boards with diverse directors in key positions tended to perform better, suggesting that there was no quality issue involved in the lack of appropriate representation. Indeed, diverse boards also secured better support from shareholders, which highlights the satisfaction among these key stakeholders.

“In sum, our evidence points to the conclusions that diverse directors possess at least the same professional skills as their peers and, when serving in leadership roles, diverse directors perform their board duties at least as well as their non-diverse counterparts,” the researchers say. “Moreover, we found no evidence to suggest that diverse directors avoid serving in board leadership roles. Thus, we posit that biases may at least partially explain the leadership gap we observed for diverse directors.”

As with the Bath paper, the researchers found that the best approach to mitigate this was to specifically adopt a policy whereby they consider race and gender in all board nominations. Similarly, including diverse directors on the nominating committee was also effective.

Sadly, as research from Bayes Business School illustrates, firms often don’t tend to make moves in this direction until forced to by regulation, which doesn’t fill me with a great deal of optimism that change will be on the horizon any time soon.



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