On board culture and diversity

Corporate governance thinking and practice seems to evolve either as regulators respond to corporate failings or directors adopt the prevailing conventional wisdom.  A year or two ago, the call was for boards to recognize their responsibility for identifying their company’s risk profile, assessing long-term risk, and ensuring appropriate risk  strategies and policies were in place and working appropriately.   Cadbury and the other early corporate governance codes had nothing to say about risk: now it has become a central issue.

Today, the conventional wisdom is focusing on board culture and board diversity.  But commentators seem unable to agree on what is actually meant by culture or diversity.  The time has come for some clearer thinking.

In March this year, I wrote in this blog that culture ‘can be thought of as the beliefs, expectations, and values that people share.  Like the skins of an onion, culture has many layers – national cultures, regional cultures, the culture of a company, and the culture in a board room.’  Much of the recent commentary about culture in corporate governance has focused on board level culture and its reflection on the culture of the company. so that it permeates activity at every level and in every sphere.

In its February 2017 report on corporate governance reform[1], the UK Department for Business, Energy and Industrial Strategy identified culture as ‘the central tenet of good corporate governance (which) should be embedded in the culture of all companies, so that it permeates activity at every level and in every sphere.’  Now what does that actually mean?  What do directors need to do to make it operational?

Board level culture depends on the experience, beliefs and expectations of those involved and, in particular on the leadership of the bard chairman and any other dominant personalities on the board.

Composition of boards

Companies should recruit executive and non-executive directors from the widest possible base.

The Report supports the recommendations of recent reviews on gender and ethnic diversity but recommends further measures ‘to ensure that diversity is promoted at all stages of careers to broaden the pool of talent at the executive level. To this end, the Government should set a target that from May 2020 at least half of all new appointments to senior and executive management level positions in the FTSE350 and all listed companies should be women.’ Overall, the Report’s recommendations are aimed at permanently ingraining ‘the values and behaviours of excellent corporate governance into the culture of British business.’

 

[1] For more information see the most recent blog from Professor Chris Mallin on this website.