Taking the risk out of diversity

The top ranks of Australian big business have garnered a well-deserved reputation for being a boys’ club. In 2011, 250 of the top 500 ASX-listed companies had zero women on their boards.

Despite the ongoing lobbying of the Diversity Council of Australia, appointments to directorships at ASX-listed companies have long been the almost exclusive domain of a rather homogenous group of men.

A 2011 research report by the Reibey Institute into the board composition of the 500 largest ASX-listed companies found that a mere 235 individual women held directorships in our largest public companies. Those women held a grand total of 10 chairperson roles and 307 directorships.

A more sensible team balance is clearly needed by many companies, and it is not just a matter of hiring more women. Skills and age diversity are also relevant, and are also lacking on many boards. Boards are meant to represent shareholders – not the interests of the incumbent management team.

While the DCA regularly promotes studies which attempt to link company performance with board diversity, a lot more research needs to happen before we really understand the numbers.

A very controversial recent study by the German Bundesbank looked in-depth at how diversity within executive leadership teams impacted overall risk management within the German banking sector between 1994 and 2010.

The uproar created by the study was intense. The study effectively found that German banks which had higher levels of female executive participation at a CxO level (between 1994 and 2010) had taken measurably higher risks.

While hyperventilating critics paint the report as another piece of misogynistic propaganda, it is worth looking deeper. If anything, the study findings argue that CxO level executive experience and qualifications are absolutely crucial to organisation-wide performance. The conclusion presented is that mandated quotas for female participation led to people with lower levels of experience being appointed, resulting in the adoption of higher levels of risk.

The simple reality is that many Australian businesses could benefit from taking a few more risks. Attracting a more diverse range of people (and skills) to your executive team will give you a wider set of experience to draw upon when you are facing challenges.

Diversity is not a compliance issue. It is a leadership issue that needs to be dealt with seriously by every level of your organisation. Sensitivity to workforce and customer diversity should be embedded into business processes, employee retention programs and hiring policies.

Quotas are the real risk to business performance, as they can sideline team members who have the highest levels of skill and experience.

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