I am increasingly irritated by those who respond to every business issue by pointing out that the board involved is dysfunctional because it is not diverse.
Aston Martin is in the news today. There are no women on its board. More interesting to me is that there is a preponderance of chartered accountants and the issue that has arisen relates to accounting. The company web site is not very informative about the current board but, although it has gone through a major shake up recently, two of the board members - described as shareholder representatives (aren't all board members shareholder representatives?) - have been directors within the group for a while and are CPAs. Asleep at the wheel?
J K Galbraith defined conventional wisdom in "The Affluent Society":
It will be convenient to have a name for the ideas which are esteemed at any time for their acceptability, and it should be a term that emphasises this predictability. I shall refer to these ideas henceforth as the conventional wisdom.
The idea that diversity is a remedy for the poor outcomes of groupthink has become conventional wisdom in the board diversity discourse: one could even argue that it is the result of groupthink among those promoting it.
But it is worth reminding ourselves that no board or committee can operate effectively without consensus: finding a way to reconcile challenge and arrive at consensus is the job of an effective chairman but board meetings take place behind closed doors and minutes provide little insight into how consensus is arrived at. Even personal reports of meetings can vary among attendees. And, of course, there is no guarantee that consensus will lead to good business decisions. How can we distinguish between groupthink and negotiated consensus?
Tracing the history of UK corporate governance regulation suggests that there seems to be an implicit acceptance that NEDs provide insufficient challenge: it was first assumed that the reason for this lay in their lack of independence and this underpinned the approach of Cadbury Code. As a result, the balance of board membership between executive and non-executive changed and boards became more measurably independent from management. There is little evidence that this has improved corporate governance, however you choose to measure such potential improvement, a challenge in itself. And it is telling that the annual Grant Thornton corporate governance analyses show repeatedly that the area of least code compliance is that relating to NED numbers. Research into this issue would be useful but I'm not aware of any. And a moment's thought might lead one to reflect that the change from a situation when the entire board sat round the same table to a situation where contact between NEDs and the full group of EDs can only take place under different circumstances might have had unforeseen consequences with regard to effective communication. Again, this could be a useful research area.
But now it seems that the reason for imputed lack of challenge in the boardroom has more to do with lack of diversity. Both independence and diversity are measurable substitutes for that which cannot be measured - the independent and diverse thought and behaviour which are seen as desirable in board members. But without sound evidence that the prescription of board composition improves corporate governance, boards are likely to be further hamstrung by imposed requirements, especially if all aspects of diversity are to be addressed.
The debate about the purpose of the corporation is welcome. When corporate purpose is substantively and transparently addressed, accountability processes can then be designed appropriately. Do we need boards? Read this and ponder.
