This week the Financial Reporting Council has published a lengthy (129 pages!) report entitled "Board Diversity and Effectiveness in FTSE 350 Companies". The heatwave had pretty much fried my brain but I was still eager enough to learn its contents to sit in my very warm study staring at my computer screen to read it as soon as it landed. (Pause for short rant: I know I am old-fashioned - I'm certainly old - but I really do prefer to receive hard copies of publications like this. I like to scribble notes on them and flick back and forth between the pages. I'm sure I absorb information from a printed page much more easily than I do from a screen. Yes, I could have printed it out but that would have taken ages and a lot of printer ink and made my study even warmer.)
Was the effort worthwhile? I think it will repay further reading but here are my first impressions.
It's a well written report. I hope this encourages readers to continue beyond the executive summary.
It's very encouraging to see some academic rigour applied to the topic to underpin the recommendations. The research methods are clearly described, in considerable detail. The appendices include a substantial list of references and a dip into the academic literature with a balanced approach that doesn't just cherry-pick studies which support previously determined recommendations, as so often happens in earlier reports. But it's a limited list that does not venture into other disciplines such as law and sociology where scholars have also tackled this topic and offer useful insights.
The researchers are very clear about the problems of inferring causality from correlations (page 9) and provide important caveats about interpreting the statistical data. Other limitations of the research are clearly set out (page 21).
The role of the nominations committee, the least researched of the board committees originally recommended in the Cadbury Committee report, is emphasised.
The importance to boards of diversity of thought is clearly demonstrated and the need for further research into its assumed relationship to demographic diversity is emphasised. This is particularly important as demands on boards to move beyond gender and ethnic diversity continue.
Two aspects that trouble me:
1. The authors assert that the debate should move beyond discussion of why diversity is important to explore how it can be achieved, criticising the business case approach (rightly, in my view) for leading to potentially adverse consequences. However, my reading of the debate over many years is that the advancement of the business case was politically motivated and has led to other arguments for board diversity being insufficiently discussed. The perspective of this report does little to change that. For example:
"In addition to gender and ethnicity, there are a number of other ways in which directors are not representative of the UK working population" (page 12)
Why should directors be representative of the working population? Under the current regulatory regime (admittedly a regime that does not adequately reflect twenty-first century business or social environment) directors represent shareholders alone; the arguments for wider representation on boards need to be clearly articulated. Further, the practical problem faced by boards in addressing demands for diversity beyond that of gender is not fully considered. There are also potential issues arising from the transgender debate which may impact boards.
2. The approach of the authors to qualitative research concerns me. The predominant background of the research team appears to be psychology and behavioural research, mostly using a quantitative approach. I suspect that their main use of interviews as a data collection method has been in the context of providing consultancy advice to boards - the interesting BEP/Q-sort tool suggests this, as do the comments on page 103 about the limitations of interviews. Ethnographers have strategies to overcome such limitations, although the significant constraints on conducting research interviews in the context of a pandemic must be recognised. Research described as "mixed methods" (quantitative and qualitative approaches combined) presents important challenges to underlying assumptions about what counts as knowledge and requires more than adding a series of interviews to bolster statistical analysis (page 26)
The addition of an anthropological perspective to the research team could have provided further insightful analysis, exploring in greater depth the context in which board diversity is addressed and experienced and the rituals and symbols which provide clues to how it is conceptualised. Gillian Tett's recent book "Anthro-vision" beautifully demonstrates the value of an anthropological approach to organisations.
Overall, I think the report is a very useful addition to the knowledge base with the potential for stimulating further well-informed debate around the issues identified, particularly how boards can meet the challenge of demands for different sorts of diversity and how these can stand as proxies for diversity of thought. I do hope that the authors will produce a paper or two in peer-reviewed journals from their data to confirm the validity of what looks to me like very useful data analysis.
I'll read it again when the weather changes...
