Thursday, January 24, 2008

Governance and diversity: an inspector calls in Norway - what can we do here to improve board diversity?

Things get serious in Norway next month. The Economist reports that public companies will shortly receive a letter informing them that they have until the end of February to act - or face the legal consequences (which could include being dissolved) - unless they ensure that at least 40% of their board directors are women.

A law passed in 2003 setting the quota has pushed board representation up from 7% to 36%. That compare with the UK’s figure of 11% tracked by Cranfield School of Management’s FTSE Female Index.

You might think that things were better in the public sector given the profile of equality and diversity. You would be right – but things aren’t OK.

According to a study last year by the Centre for Excellence in Leadership (CEL) only about one-third of Further Education college governors are women. (Studies suggest that diversity is poor in relation to age, ethnicity and disability too.)

Does diversity on boards matter?

The HR professional's institute, the Chartered Institute of Personnel and Development, says:

Diversity is ... the concept that people should be valued as individuals for reasons related to business interests, as well as for moral and social reasons. It recognises that people from different backgrounds can bring fresh ideas and perceptions which can make the way work is done more efficient and products and services better.

There is a strong case that diversity helps avoid groupthink.

What can be done by the public and not-for-profit sectors?

I would argue that the key is moving away from reliance on personal contacts and word of mouth – it still survives.

The CEL study mentioned above included in its recommendations:

* Open and Formalised Advertising of governor vacancies, with specific requirements on outlets used. Advertising should clearly specify the skills required to become a governor.

* Clear Messages in Advertising Material that ‘the college strongly encourages applications from all sections of the community’.

* Consider independent assessors on search committees who contribute to the screening, interviewing and assessing of applicants.

* Formalised Records on appointment decisions, which can then also be viewed in audit.

* Formalised induction and training procedures (especially on equality and diversity issues).

* Community outreach initiatives: to enhance applications from underrepresented groups, colleges should explore creative ways to reach out to local communities, consulting with students, staff and parents, for example, by focus groups and surveys.

Its findings also suggested that horariums for governors might be helpful. However, I would note that board remuneration can cause complications for diversity – particularly due to the anomalies and disincentives of the benefit system.

I would also stress the importance of organisations building links with networks in the community – rather than just the personal networks of existing governors.

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