The report ‘How diverse should boards be?’ (“the report”) explains that board diversity “has become a corporate governance issue on which there is pressure for change”.  It further notes that the issue of diversity “is not going to go away anytime soon” and “is a natural consequence of questions being asked about companies”.  Currently in the UK, there are non-mandatory targets being set for female board representation and pressure at European Union level for mandatory quotas for women on boards.  

The report highlights that boards now need to “acknowledge the importance of diversity” in order to avoid diversity being created out of initiatives such as quotas, which will only promote diversity in “appearance rather than substance”.  

The report calls for boards to “take the initiative” and identifies four drivers that boards can use to set objectives for diversity that enhance board effectiveness: 

• an apparent lack of diversity raises doubts about effectiveness and the ability of the board to think outside the box;
• diversity can contribute to society’s belief that the company supports social norms or equal opportunity and fairness and will conduct itself in a socially acceptable way;
• diversity can help boards understand internal and external stakeholders and will allow them to “see business opportunities and threats through their eyes”; and
• board diversity will contribute to a culture of better decision making. 

The report notes that “acknowledging and addressing the drivers of board diversity should help boards become more effective in promoting their companies’ long-term success”.  However, the report highlights that the level of diversity within companies will vary and there will be challenges of achieving diversity.  

The press release and full report can be obtained from the ICAEW website.