company board diversity is critical for better performance
Emerging trend seeks to improve diversity on corporate boards. Image: CNN

Summary:

In the recent past, company boards have risen to become the heartbeat of organizations across public and private sectors around the world. Their essential roles and functions cannot be understated. This is true for all profit-seeking, nonprofit and charitable organizations.

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Several standards and modes of operation on company board diversity and responsibilities have been developed and implemented. The stated goal was to keep organizations in touch with the rapidly developing world. While company boards across the world have the mandate to oversee and manage organizational conduct and internal affairs, their composition and diversity are becoming more integral to firms performing optimally.

The board is the apex of governance in any organization. Mwongozo, the code of governance for state corporations in Kenya, in its governance statement, articulates that, to achieve its strategic objectives, an organization should be led by an effective board. 

For this to be possible, the appointment, induction, and professional development of the board should be based on diversity for the effective delivery of its mandate.

The process of appointing board members is crucial in ensuring an appropriate board composition that’s fit for meeting its purpose. The process should be transparent, open, and fair, and importantly, ensure that appropriate skills, expertise, and experience that the board requires are achieved.

For public sector entities and state corporations, in most cases, the appointment process is guided by an Act of parliament that established the organization and guides its operations/activities. 

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Company board diversity vs. performance

The appointment process in the private sector varies, depending on the nature of the organization, its legal registration status, and relevant governance instruments that govern its operations.

In both cases, the appointment process should ensure that board diversity is achieved. This diversity could be in the form of skills, geographical representation, and gender among other parameters. 

A board that’s diverse is likely to be vibrant and consider issues from wider and different perspectives which are likely to yield better strategic decisions. Diversity also enhances board independence, which is a critical ingredient for an effective board.

The composition of the board right from the board chair should be diverse enough to enable it to function effectively and accommodate everyone. As such, his/her appointment should be informed by organizational culture and a profound commitment to diversity and fairness.

The board chairman has a crucial role in unifying the board and harnessing the full capacity of its members for the effective delivery of the board’s mandate. The chairman should encourage and provide equal opportunity for all board members to participate in board meetings.

Through effective and efficient chairing of board meetings, the chairman ensures that board meetings’ agendas are comprehensively dealt with and clear resolutions are made for management implementation.

Whilst observing professional independence, the chairman works closely with the CEO in setting board meetings agenda that are sharp and responsive in addressing the needs of the organization.

The chairman ensures that the agenda is shared with board members in good time to facilitate adequate preparation for board meetings. The same applies to board papers which normally accompany agendas for board meetings.

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High-performance, diverse company boards

company board diversity is critical for better performance
Gender goals could ensure diversity on corporate boards. Image: The Regulatory Review

The Chairman also ensures that board members understand their roles and that of management and therefore cushions management through the CEO from any interference from board members.

For the success of any board, it is important that a board chair should possess the skills and experience that are essential to leading a successful board. The chair needs to have interpersonal and communication skills to bring the required harmony between the board, management, and other stakeholders.

A key outcome of a diverse board is independence in terms of decision-making and handling the rigors of corporate management.

Board members must be independent to exercise their judgment freely without bias. Independence of mind is important in making board decisions. If a board member has an interest in a subject of board discussion, it’s important for the member to declare the interest at the beginning of the meeting.

This enables other board members to decide on how to handle that matter. It’s common practice to excuse board members from discussions involving subject matters in which they have an interest.

Building a diverse company board

In a typical board meeting agenda, after the introduction and preliminary matters, the declaration of conflict-of-interest agenda follows next. In this agenda, board members are encouraged to express their interests and such interests are noted in the conflict-of-interest register.

Board members with such interests are advised on what to do at the time of discussion of the agenda item in question.

It’s important that the director’s induction and continuous development program include this matter of independence and conflict of interest. Directors should also sign and subscribe to a code of conduct and ethics that preclude them from getting involved in matters or activities that can jeopardize their independence.

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A diverse board composition is critical in offsetting most of the challenges a board may face in dispensing its mandate. The challenges may vary from stakeholder perception to differences in communities hosting the organization or area of operation. 

Stakeholder judgments of board effectiveness to preside over the affairs of the organization or organization also vary substantially. Organizations with diverse boards in terms of age, gender, education, and experience perform better and more effectively than those that are challenged on the diversity question.

About the author

Vani has a keen interest in investments, entrepreneurship, and small businesses.

Vani Ongaya

Vani has a keen interest in investments, entrepreneurship, and small businesses.