David Watt: Why diverse boardrooms can pay dividends
THE traditional view of a boardroom is of one composed of suited, aged and experienced male executives who receive healthy salaries which most people could only dream of.
This perceived long-established method of business may offer experience and a career path for some retiring chief executives but recently the benefits of a more diverse boardroom have become abundantly clear.
By incorporating more women, different ethnicities and religions as well as younger executives, some businesses are demonstrating an increase in profits as well as altering their image with both shareholders and customers. A diverse boardroom has been shown to create a more dynamic company that benefits from a wider range of ideas and abilities, alongside enabling the business to adapt to the changing economy and consumer needs faster.
Over the past 30 years, however, there has been a growth trend that has resulted in a small number of top executives attracting significantly larger salaries than their staff. In 1980 the average CEO of a major corporation earned 42 times the average hourly worker’s pay. In 2000, an average CEO received 531 times the average hourly worker.
It is worth noting that these enormous wages have been accompanied by a reduction in staff numbers in most organisations. Employing fewer staff and paying them more is seen as the way to build a better business and yet there is little empirical evidence to back this up. Indeed the most worrying thing about the radical wage increases is that they have not been matched by improved company performance – especially over the long term.
Such remuneration levels are detrimental to the reputation and legitimacy of the UK business community, and the Institute of Directors has publicly supported Government proposals to give shareholders a greater say on executive pay policy. Some would say that these pay levels have also damaged – some believe permanently – the image and ethics of business and indeed capitalism as a whole.
The good news is that there have been a number of revolts by shareholders – most recently at WPP against the reward package being proposed for Sir Martin Sorrell – and these votes are bringing some sanity to the picture. The setting of lower and longer term deals now seems to be becoming the trend.
Diversifying the boardroom should not only help to increase profits but motivate staff who would see a greater chance of promotion, in turn increasing an organisation’s productivity.
Youthful boardrooms are often seen as a risk due to a lack of experience and knowledge of certain situations but in reality a younger selection of CEOs could lead to ample success for an organisation. Social network Facebook is run by 28-year-old Mark Zuckerberg and is worth billions. A range of ages in the boardroom can bring a wider range of ideas and opinions, which will assist an organisation to overcome problems, generate new ideas, allow it to become more dynamic and make it much easier to tailor to their consumer’s needs.
A range of males and females, ethnicities and religions in boardrooms is believed to create a more successful, more sustainable and better equipped organisation that will be prepared to meet future challenges.
By having a wider selection of opinions the organisation will be able to gain a larger knowledge of the pressures and aspirations of their own workforce, a more robust inbuilt knowledge of issues affecting suppliers, customers and competitors as well as build a working environment and structure, which will attract the ideal workforce.
“Group thinking” – the common killer of innovative strategic thinking – is much more likely to be avoided with a diverse boardroom and instead the same situation will be interpreted from different perspectives.
The boardroom of tomorrow will move away from the conventional view of overpaid males in a group of the same profile and background. Diversity will be embraced and the benefits it brings will be shared more widely with staff and shareholders.
Organisations that persist with the traditional structure of boardrooms will struggle to keep up with their competitors who have incorporated a diverse boardroom into their organisation and so are more able to adapt to a changing economy and customer needs.
• David Watt is executive director of the Institute of Directors Scotland
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