Why Boards can't afford to abandon DE&I.
How diverse Boards unlock new talent, avoid groupthink, and drive better decision-making.
Company Boards are revising their DEI approach to focus more on the commercial reasons.
When protests over issues of racial injustice spread across the US and Europe in 2020, company Boards began to reflect more seriously on the diversity and inclusiveness in their own senior ranks. But as the US government began rolling back Diversity Equity and Inclusion (DEI) mandates, company Boards followed suit. Many started to focus on DEI’s commercial justifications rather than seeking to right historic social and economic injustices.
Numerous US-based companies fear being seen as too political, or even breaching equality legislation. Some have removed overt DEI messaging from websites, or they have renamed DEI job titles as Head of ‘Impact’ or ‘Engagement.’ They have found indirect ways to hire marginalized groups, for example recruiting non-graduates from hitherto ignored districts. Others are downplaying public outreach policies, such as supporting Pride Month, while still affirming a commitment to minority hiring.
There is regulatory pushback too. The Wall Street Journal reports that in 2024 almost 6% of S&P 500 companies reduced or eliminated DEI metrics from remuneration calculations. This was the first net reduction since the 2020 death of George Floyd. A New Orleans Appeals court rejected Nasdaq’s proposals to require racial and gender targets for listed companies. Other companies have cancelled policies that prevented them from acting for clients whose Boards were deemed insufficiently diverse.
Sceptics may question whether all companies had been committed to change.
Inclusion policies now focus increasingly on commercial advantages, devoid of politics, though ideology may sometimes remain part of the conversation. One Chief Diversity Officer told her DEI team that their job was “to help the company make more money by ensuring discrimination doesn’t cost it talent, customers or a good reputation.” So, is it time to return to commercial fundamentals?
Asking the fundamental questions... again
Odgers’ qualitative survey of Board Chair opinions in South East Asia and Australasia found a shift “from diversity as representation to diversity as a dynamic force for organizational resilience, innovation, and cultural coherence.” One Chair advises: “Start with the skill base to meet the needs of the organization.”
Issues are varied, complex, and depend on national context. Race, ethnicity, and sex dominate discussions. But under-represented categories covering – though not limited to – social class, generation, neurodivergence, physical disability, sexuality, gender identity, religious beliefs, nationality, indigenous status, might also merit targeted support or positive action.
An Odgers survey respondent notes: “Generational divides are particularly pronounced.… Gender remains a persistent axis of imbalance, especially in senior leadership. And while cultural and socio-economic diversity is increasingly recognized, it often remains under-addressed due to structural and cultural inertia.”
Getting the right balance among complex intersectional relationships can be complicated, while managing day-to-day business. The following themes should help Boards frame the options they may face.
Social justice
A social justice narrative has not disappeared. There can be strong commercial reasons for upholding it. Major brands can see their role as key stakeholders in society, capable of leveraging their resources to support goals beyond immediate profit. Typified in the ‘triple bottom line’, comprising ‘people, planet, profit,’ their image is seen as inseparable from concepts of ‘doing good’. A Board risks accusations of inconsistency, hypocrisy and partisanship, and even legal or regulatory challenges, if actions appear devoid of commercial context.
Relevant societal awareness can also help attract new and younger talent who want their employer to offer higher social purpose, more autonomy or a better work-life balance. “Embracing diversity is critical for attracting and retaining the best talent, especially as the profession competes for skills in the global market,” says an Australian Board member. It’s worth noting that every ‘younger generation’ since 1945 has expressed almost exactly the same goals. Their views may change, or may not have been kept up to date by the time they reach the Boardroom.
Adopting social goals devoid of commercial context risks accusations of inconsistency, hypocrisy, and partisanship, and exposes a company to legal or regulatory attack.
New talent pools
Much has been written about the so-called battle for talent. More should be said about finding new talent pools. The typical CEO profile employed by a major company – tall, white, middle-class male with a prestigious MBA – is noticeably different from the more varied profiles of successful founder-entrepreneurs. This suggests that there is untapped business prowess in the market.
The range of senior executives began widening in the 1990s and 2000s as companies expanded into emerging markets. Recruiting talented people locally brought relevant know-how and market knowledge beyond the scope of a costly Western expatriate. The best would go on to help run global operations at company HQ.
Companies have also become more aware of under-utilised talent at home, for example, introducing ‘Returnships’ that fast-track experienced senior women following an extended maternity break; or making workplace adjustments that enable neurodivergent candidates with exceptional analytical skills to flourish.
A changing stakeholder base
Buying power among under-represented groups is soaring, and their voices need to be heard at Board level. An Odgers survey respondent says: “It is about cultivating a Boardroom that mirrors the complexity of the world it serves. This includes gender and cultural representation, but also extends to diversity of thought, lived experience, and professional background.” Shailesh Haribhakti, who Chairs several corporate Boards in India, believes that “Boards must reflect customers and stakeholders who are far younger, tech-savvy, and purpose-driven.” He adds: “In a world of AI-led disruption and climate crises, diversity is the bridge between past wisdom and future foresight.”
Decision-making
An elusive, but essential, reason to favor Board diversity is to avoid unconscious biases. One Board Chair explains: “the goal is to avoid the perils of groupthink and to foster an environment where assumptions are challenged and decisions are enriched by a plurality of perspectives.” Boards that consist overwhelmingly of people from similar backgrounds often share a common world view. Major errors of judgement happen when people instinctively agree rather than challenge another’s perspectives. That can happen even when all the people around the table are accomplished in their own right.
Including someone with diverse background does not necessarily mean they will hold a different opinion from the majority, or if they do, that they will voice that opinion if they feel under pressure to conform. But a diverse Board does at least increase the likelihood that new perspectives will be aired thanks to the very presence of people with different life experiences. “This layered experience of class isn’t just about current status, but the path taken to get there,” says Professor Chandrasekhar Sripada of the Indian School of Business.
At the same time, Boards do not have to recreate a microcosm of society’s ethnic, gender or other mix to gain the benefits of diversity. It could even backfire. One surveyed Board executive points out that a “highly diverse organization might generate silos and subgroups, making it harder “to find a common binding factor to build a common culture.” Boards do, however, require enough variety to prevent a single perspective from dominating, leading to groupthink or, worse, to the Abilene Paradox whereby everyone agrees with an action that no-one really wants. As Mr. Haribhakti notes, one might “measure success by how comfortable dissenting voices feel in the Boardroom; true diversity thrives where disagreement is not feared.”
Diversity of thought
The imprecise calculus by which greater diversity leads to better decision-making gives rise to the common view that what really matters is ‘diversity of thinking.’ This axiom suffers from an obvious logical fallacy.
Diversity of thought may sound sensible on the face of it, but it begs the question: who decides what thinking is sufficiently diverse, and what are the limits of reasonable thinking.
Diversity of thought begs a key question: who decides what thinking is sufficiently diverse, and who sets the parameters of ‘reasonable’ thinking. Pre-determining what is ‘permitted thought’ implies a consensus that may be part of the problem. If the Chair draws that line, future debate will be subject to the biases of that one person. It is why brainstorming exercises allow any opinion to be expressed regardless of how apparently outlandish. One might also point to several political and economic events that have caught experts by surprise. Senior leaders benefit when they hear a wider range of views.
Odgers survey respondents call for curious, cross-functional leaders who see diversity and inclusion “not as a socio-political challenge to be managed, but as sources of commercial strength to be harnessed.”
www.odgers.com