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Boardroom Diversity

Diversity- Simply stated, diversity means variety. People with different opinions, backgrounds (educational and social), religious beliefs, political beliefs, sexual orientations, heritage, and life experience are examples of diversity.

There is no denying the fact that many companies have benefited significantly from the variety of opinions that persons of diverse backgrounds bring to the table. Since diversity, more often than not, brings different perspectives to the deliberations, it is reasonable to presume that diversity positively impacts revenues and profits.

Many global MNCs recognize the benefits of diversity and are working pro-actively towards increasing diversity in their workforce. While a number of Indian companies are making similar efforts, much more remains to be done.

Although diversity can take many forms, one of the focal points of diversity, particularly in India, is gender. If we dig deep to ascertain the root causes of the lack of women participation in the workforce, we come to three major reasons:

  1. Societal factors in homes and schools
  2. Girls drop out at an early level of schooling
  3. Factors such as marriage and childbirth and consequent disruptions in the work trajectory of women.

Perception of lack of safety in the workplace is also a contributing factor.

Why is Diversity needed?

A company with a diverse workforce is likely to have better insight into customer behaviour. This can translate into better business prospects.

Diversity in the Boardroom

Diversity in the boardroom has been a topic of discussion for quite a few years. Diversity should be a mix based on gender, experience, age, geography and other factors.

Gender: This is the most common form of diversity in a boardroom. Earlier, corporate boardrooms were a preserve of men. . In recent years, there has been some change, with the law mandating the presence of at least one woman director in boardrooms of at least of the larger companies.

Age: The most overlooked element of diversity is age. Board members tend to be older, as many boards look for persons with experience. A boardroom should comprise a mix of both older and younger persons. While older directors do bring a wealth of knowledge and wisdom, having younger directors often introduces fresh thinking into the boardroom. The value arising therefrom cannot be underestimated. There could be some sectors such as IT, FMCG etc. and segments such as startups which could benefit significantly from the ability of younger Directors to relate better to these sectors and segments.

Geography: Geographic diversity refers to having on the board a mix of individuals from various geographic locations. Ideally, the geographic mix should align to the areas that the company has business interests. In an increasingly global workplace, neglecting this element of diversity would be particularly imprudent for a multi-national company as it may result in boardroom perspectives lacking a robust understanding of the company’s operating environment.

Experience: A traditional boardroom, with no diversity of experience, does not have exposure to a wide range of perspectives that are needed for the effective functioning of the board. SEBI has also mandated that a variety of competencies are required in every board. The board is well equipped to guide the business and its strategy if it has a fair mix of skills, expertise and experience.

Taking Steps Towards Sustainable Diversity

Any organisation trying to build a diverse workforce needs commitment from the highest ranks.

Corporate India needs to work on the introduction of diversity into its governance structures. As per SEBI LODR Regulations, 2015, listed companies should have at least one independent women director on their boards. Initially, the requirement was for at least one woman director to be on the board, with no stipulation regarding independence. This led to a number of women family members being appointed as Directors. While some of them might have been suitable candidates, having regard to their education and experience, a number of them got appointed only to tick the box of compliance without any expectation of value addition. Ideally, a board should have at least 2 women directors, of whom at least should be an independent director.

For sustaining diversity, a strong focus on inclusion by respecting and welcoming different views around the table is required.

Inclusion is necessary

In order to embed diversity and inclusion into the company’s DNA, there is a need to create a decentralised nucleus of change across the organisational structure by having openly stated and reinforced statements of policies and intent. Companies should make concerted efforts to create awareness and support for diversity at all levels, especially at the board-level. This will help in cultivating a sense of responsibility towards inclusion.

A business cannot thrive without having a diverse board. Diversity, not restricted to gender, will be necessary for a company to serve the plurality of Indian society.