Chapter 8 – Diversity in the boardroom

Question 1

Name the six dimensions on how companies can benefit through diversity. CHIRDS

Answer 1

• Costs (globalisation)
• Horizon scan (flexible, agile and resilient)
• Innovative - multiple perspectives
• Reputational
• Decision making
• Strategy

Question 2

Due to issues with diversity, name an example of a country which is struggling and the implications.

Answer 2

Jersey: cannot fill 300-350 director positions due to a lack of upcoming diverse board talent > over-boarding – costing Jersey £9 million every year due to lack of upskilling

Question 3

Name some facts relating to gender diversity

Answer 3

• Although all FTSE 100 boards have at least 1 female on board, only 48% have at least 33% as part of the board composition
• There are more more people called David or Steve than women on FTSE 100 boards
• McKinsey study found an outperformance of 15% in financial performance where there was sufficient gender diversity
• 51% of the population in the UK are women

Question 4

Name some facts relating to ethnic and race diversity

Answer 4

• Parker Review – at least one BAME on each Board of the FTSE 100 by 2021 – now in 2023, this is currently at 96
• McKinsey: ethnically diverse companies outperform 35% better in terms of their financials
• Sir John Parker: UK companies have made great progress on gender diversity, but there is much more to do around ethnic and cultural diversity

Question 5

What is the advantage and disadvantage of country culture diversity i.e. where there is an international stakeholder presence

Answer 5

• Highly culturally diverse teams suffer what is known as **‘process losses’ **through task conflict and decreased social integration i.e. often tend to work less well due to differing opinions and differences in how comfortable cultural cliques can feel when working together
• However, conversely, they also show **‘process gains’ **through increased satisfaction and enhanced creativity due to high levels of innovation and increased enjoyment from the stimulus that their differences often bring

Question 6

Give some examples of other ‘surface’ diversity

Answer 6

Social background: disability, religion, socio-economic, sexual orientation and neurodiversity

Question 7

In terms of deep diversity (i.e. cognitive and personal strengths), what are the 4 different learning styles according to Honey and Mumford - PART

Answer 7

o Pragmatists: people who learn best through hands on trial and error
o Activists: people who learn best through experience
o Reflectors: people who learn best through reflection
o Theorists: people who learn best through theory

Question 8

How can individual directors and the board as a collective develop a diversity mindset?

Answer 8

• Be aware of biases and do an implicit bias test via Harvard University
• Get to know each board director personally beyond meetings
• Lead and sponsor diversity initiatives
• Avoid making jokes at the expense of particular individuals or groups

Question 9

Name the different types of diversity

Answer 9

• Gender diversity
• Race and ethnic
• Age
• Country culture
• Other ‘surface’ diversity i.e. social
• Deep diversity i.e. cognitive and personal strengths

Question 10

Outline the relevant Code and FRC sections on Diversity.

Answer 10

Principle J: ‘both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.’

FRC Guidance on Board Effectiveness (2018): Diversity in the boardroom can have a positive effect on the quality of decision-making by reducing the risk of group-think.