Boardroom diversity: Another red herring

About 2001, when I still headed the audit practice of my firm, I recall an evening at an old Portuguese bungalow on the banks of the Mandovi River. As we sipped our pre-prandial wine, two lady partners from the Mumbai office, the head of HR of the firm’s UK counterparts and I were chatting. The conversation turned to diversity. Quite naturally, my lady colleagues thought more could be done. The man from London then listed all the wonderous things that his own firm had done to get more women to join and to enable them to climb the proverbial executive ladder. After he had completed his list of accomplishments, I asked, “The UK economy is doing very well. There is a severe shortage of qualified people. Would you have done all of these things if that was not the case?” After a few seconds of reflection, he confirmed my scepticism, “No” replied he, “I think not.”

Unless women are in sufficient numbers, their voices tend to be drowned in the louder (even literally) assertions of the males around the table. The author’s experience is that even a controlling woman shareholder is unable to get suggestions based purely on her feminine instincts accepted by a predominantly male board.

So, that is the first reason why boardroom, or indeed, employee, diversity, is a red herring. It sounds progressive and high-minded but is, in reality, turning a necessity into a virtue. It is a red herring to mislead critics of corporate abuse into believing that adding one woman to a board will reduce the abuse. It is one more bottle of snake oil to be added to all the others on the corporate governance shelf.

One of the principal justifications given for boardroom diversity is that it reduces risk by introducing cognitive variety around the table. That is common sense. But studies of corporate performance of companies with and without women board members do not support this hypothesis. Indeed, studies of other kinds of work groups than boards also do not provide support. Why is that so?

Unless women are in sufficient numbers, their voices tend to be drowned in the louder (even literally) assertions of the males around the table. The author’s experience is that even a controlling woman shareholder is unable to get suggestions based purely on her feminine instincts accepted by a predominantly male board. Secondly, most non-family women directors have risen through executive corporate ranks or their professions. They have had the same education and experiences as have their male colleagues. Indeed, their ascent through the predominantly male ranks would have been predicated on their being able to suppress most of their purely feminine instincts and attributes: a willingness to hear and accept different views, consensus, conscientiousness, likeability, aversion to risk, attention to detail, ethical, caring.

The display of several of these attributes would in a corporate setting be considered a hindrance to the blinkered purpose of making as much money as possible. So, by the time a woman has reached a level in the business world where she is ready to be considered for a board position, she has learned to suppress, unconsciously, many of her purely feminine attributes in settings with a majority of men. How does a board deal with a member who is sensitive, nurturing, gentle, warm, passive, cooperative, expressive of true feelings, modest, humble, empathetic, affectionate, tender, emotional, kind, helpful, devoted and understanding? By ignoring that member. If, in error, such a one was to be inducted, they would be subtly told to restrict a display of these attributes to only the workings of the CSR committee. Rare is the company that has not sent its woman director to that “feminine” committee? That exemplifies the stereotypical beliefs about women in the rest of the board.

Diversity has many facets other than gender. There is diversity in age, in race, in ethnicity, in sexual orientation, in religious beliefs, in political beliefs, in economic standing, etc. How comfortable would an Indian board be with a member who is a teenage Ethiopian African Muslim pauper who has come out as lesbian and who advocates a Marxist society? In India, of course, we would have the added facet of caste. Forget all the other differences; how many caste, ethnic and religious differences do Indian boards have? Almost all of them are Hindu, Aryan or Dravidian (Mongoloids from the North East?), between 55 and 75 years old, straight in sexual orientation, supporters of a capitalist-democratic society and often belonging to a single sub-caste of the upper castes. The few Shudras may be government nominees. This, of course, like all that I have said, is a generalisation and many exceptions exist to this rule.

Why do boards resist diversity? To be efficient. Respecting diverse thinking would require them to invest a great deal of effort into hearing, comprehending and debating different views on every issue. Controlling shareholders, who have the decisive say in board composition, invariably want directors who are oriented to their thinking. Nobody wants a board that expends its energies on grandstanding, gaali and gridlock. They believe that the advantage to be gained from diverse ideas is far outweighed by the disadvantages. Indeed, in most meetings, rarely is a difference of opinion expressed on any topic by even one director and rarer still a topic with equal numbers for and against it.

What is the effect, therefore, of this lack of diversity? Principally, that the directors ignore stakeholders other than the shareholders, the employees and the customers. They believe, almost to a man (pun intended), that the shareholder is pre-eminent. That the other stakeholders must be tolerated, recognised, humoured so long as that does not diminish the primary purpose of maximising shareholder value. The result is that the law’s maxim of balancing stakeholders’ interests will remain an empty exhortation rather than the polestar it is intended to be.  It also means that the collection of minds does not serve the purpose intended of a variety of thought. Indeed, if the main purpose is to cheerlead management, why hire a bunch of boring grey men? Why not just that teenage Ethiopian? Sexism intended.

(The writer is noted for his work toward improving corporate governance and raising awareness on environmental issues. He is on the governing council of TERI, an independent director on the boards of Thermax and Exide Industries, and has served on the board of Tata companies for several years)