Why diversity needs to be on your board’s risk register

Posted on Oct 24, 2017

Credit: Sunday Business Post

Why diversity needs to be on your board’s risk register

By Margaret E. Ward

As featured in The Business Post.

Business, by it’s very nature, is risky. Economic and political uncertainty or
supply chain problems can scupper the best-laid plans. Planning for risk is an important part of managing a business effectively.

Boards, which set the strategic plan for a company, also have a responsibility to identify, track and measure potential risks and do what they can to lessen their impact on company performance.

Most companies based in Ireland have Brexit on their board risk register but very few have diversity and inclusion (D&I) listed. Yet, in the rapidly changing modern business environment, a lack of D&I awareness can have a negative impact on many parts of a business.

As the recent Newstalk (George Hook), Sunday Times (Kevin Myers), Google and Uber controversies show, companies can suffer reputational, commercial, operational and cultural damage when individual staff members or contractors make inappropriate, misinformed comments about women and minorities.

In all four cases, white middle-class men in positions of power made sexist public comments about women and faced an immediate backlash from customers, staff, investors/ sponsors and members of the public. The men were either fired, resigned or put on leave pending an investigation.

 

 

Avoid groupthink, improve decision-making

When a controversy occurs, everyone wonders if they could’ve seen it coming. A board’s risk register can serve as an early warning signal and stop problems before they occur. Diversity and inclusion can be tracked and measured under different categories of risk: reputational, financial (profits or funding) and operational (procedures, staff and culture).

Start a risk assessment by examining your internal culture. Does an old boys’ network or management clique exist? What are the percentages of men vs women who move up to senior roles? What are the progression barriers for women and minorities? What has been done to address it? Have there been complaints of bullying or harassment? How were they managed or resolved?

Company culture often dictates what behaviours are, and are not, appropriate at work. In a culture of uniformity, codes of conduct designed to protect all staff from discrimination and bullying are often not in place, or enforced, to ensure that everyone in the organisation is treated with respect. If a legal case is taken against a company for sexual harassment or discrimination, a lack of these procedures and controls can be held against the organisation and cause financial and reputational damage.

Under the Irish Human Rights and Equality Commission Act, 2014 there is also a ‘public duty of positive care’ that requires an employer to act to protect an employee from harm even if no complaint has been filed. Are your managers and human resource staff aware of their need to be pro-active for employees?

Another risk is a lack of diversity (sex, age, class, ethnicity, religion, ability) within a company’s decision-making structures – management, executive and board level. This can create blind spots and lead to groupthink that impacts negatively on an organisation’s culture and profitability. How diverse are your management teams and board? What skillsets and points of view are missing?

Boards without a mix of skillsets can miss angles and potential problems that a more mixed board might catch. The Institute of Directors cites cyber-security as an important skill that’s missing from most Irish boards. The average age of most boards, over 50, means that board members are not digital natives and may not understand the risk of hacking or cyber attacks risks on corporate assets.

 

 

Gain diversity, increase profits

Diversity is good for the bottom line. A significant body of international research shows that companies with greater diversity throughout the organisation are more profitable, make better decisions and have a more inclusive internal culture.

More diverse teams also tend to have a more rounded understanding of customers and a greater tendency towards innovative thinking and problem- solving.

In Ireland, research by the Equality Authority and the National Centre for Partnership and Performance in 2008 found that companies that invested in equality and diversity increased productivity and innovation. “Implementing a package of strategic human resource management, diversity and equality, partnership and flexible working systems increased workforce innovation by 12.2%. In the companies sampled, the increased workforce innovation generated on average €556,200 in sales from new products and services per company. This figure does not include potential future returns.”

 

 

Investing in people

In the war for talent, companies invest a huge amount of time and money into hiring, training and retaining staff. Although some older organisations think graduates want brightly coloured beanbags and pool tables, it’s usually culture that determines whether they stay or go.

Staff members will examine their career prospects based on who gets promoted and why. When one group dominates, others can fail to progress. A lack of role models, or people who look like them, at the top can also negatively impact on staff motivation. This can mean higher attrition rates among women and minorities.

Tracking staff progression rates can be a very helpful barometer of your company’s health. Transparent hiring and promotion procedures, flexible working hours, and clear career progression routes allow staff members to chart their own path.

A culture built around respect for individuals, that has diversity and inclusion at its heart, tends to win out over those who focus on maintaining the status quo.

Millennials want a sense of purpose in their work and are less motivated by money or titles than previous generations. Businesses who fails to understand this may struggle to retain younger talent.

A recent EY study found that the majority of businesses believe their main role is to embrace a strong corporate purpose instead of maximising shareholder value.

Of the companies that integrated purpose into their operations 97% of them reported good or great value from that decision. The benefits included greater customer loyalty, preserved brand value and reputation, staff retention and more innovation.

“Those most able to thrive in this new world are focused on their impact on the humans they touch – the customers, the employees and the wider society” EY Beacon Institute global lead Valerie Keller said.

Measuring D&I can help to create a happier, more purpose driven and productive workforce. Once you’ve identified the risks and gaps, engage your managers in helping to solve the problem. Encourage them to interact with people from different groups and find ways to ensure there’s shared cultural accountability for change.

Diversity and inclusion: if you measure it, you can make it happen.

Margaret E. Ward is managing director of Broadly Speaking, a diversity and
inclusion advocate, and an experienced board member.

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