Diversity in the Boardroom
Unity in Diversity, Bhinneka Tunggal Ika* is the official national motto of Indonesia and it is a phrase that has been applied in many “diverse’ ways over many centuries and cultures. However there is a particular importance to the phrase when it comes to the boardroom.
Unity in Diversity in the Boardroom
Many different skills and experiences are drawn upon in the boardroom in the search for the exact strategy required to ensure a flourishing and prosperous company. As well as the obvious financial skills required there are various other skills which a board might feel is needed to operate that particular board successfully. Strategy is a key component of a board’s activity for example and how this is applied will depend on the type of company it is and a number of different skill sets may need to be brought to bear on particular issues. A mining or exploration company, for example, would look for a different mix of skills than a financial based or retail sector company. A larger board may need a larger diverse set of skills to set the strategy for a national or international company. A small board may be more ‘hands on’ and so require a different and possibly more closely aligned set of skills. A NFP board, it has been suggested, requires quite a different set of skills. Fund raising, for example, is likely to be a prominent skill with a NFP organisation.
So there can be a very diverse set of skills, knowledge and experience required depending on the type and size of company.
Some important questions arise here, just how diverse should the directors of a board be? How many members of a board constitute the optimum number for that board? When is there enough diversity? And could there be in fact, a case of too much diversity for a board?
Diversity of skills vs number of board members
The age old question arises here. How many directors does it take to change a light globe? Or in other words how many directors does a board need to operate at optimum efficiency and ability?
An old Thespian mentor I once knew in the Theatre once said to me, “the best committee is a committee of one.” Of course he meant that decisions can be made far easier and there is likely to be less procrastination with a smaller number of people in the decision making process. The smaller the board the easier it is to get issues and questions resolved and strategies planned. But strategies can fall short if there are insufficient skills and experiences at the board level. A board has to strike a balance then between the need for a diversity of skills and the number of directors on a board. Too few and the board suffers from a lack of skills, knowledge and experience (SKE). Too many, and the board can become overweight and sluggish and the ability to develop optimum strategy and make timely decisions can suffer.
So what is the optimum number of board members? Outlining a clear definition may assist in determining the answer to that question.
Definition of Optimum Directors for a Board:
That quantity of directors with the right diversity of skills, knowledge and experience necessary to provide fit and proper governance and in which the other board members can trust.
Which brings us to the important issue of trust within the board room.
Trust in other board members skills
With a diversity of skills on a board, trust becomes paramount. If all the board members have the same skills, knowledge and experience (SKE) necessary to perform the board functions, only one board member would be required. It is because they do not that a diversity of SKE is required. And the more diverse and the more board members there are, a wider level of trust will be needed.
Trust in other board members and their skills are vital. How do we know we can trust them? How much do we trust them? Of course much of this is established when a board member is taken on board, so to speak. Interviews are done; the establishment of the skilled, knowledge and experience the prospective board member can bring to the board. Will the director be a right ‘fit’ and can he or she integrate and work smoothly within the board and with the other board members? All these any many other questions determine if a prospective director will fit in with the rest of the board.
On one level each member carries the same responsibility of every other member and the board as a whole. On another level no one board member can be expected to have the same experience and skills of every other board member so picking the right mix of diversity for a board is paramount in order to ensure that trust can be afforded by each board member in the other board members.
In other words the more a board fits together well the more effective it will be. Developing bonds and collaborating together can make a tremendous difference to the board’s effectiveness.
Would the proper, fitting and effective diversity have saved Hardie or Centro? The fact that it was not ‘saved’ tends to suggest that the diversity of skills, knowledge and experience not to mention the trust between board members was evidently not optimum.
With the regulations for board members becoming ever tighter and more restricting, boards will need to fine tune the number and diversity of their board members to ensure they have a fit that is optimum for that board and in which trust can also fit safely within the board.
* Bhinneka Tunggal Ika is the official national motto of Indonesia. The phrase is Old Javanese translated as “Unity in Diversity,” It is inscribed in the Indonesian national symbol, Garuda Pancasila (written on the scroll gripped by the Garuda’s claws), and is mentioned specifically in article 36A of the Constitution of Indonesia.