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Importance of diversity in board members

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Importance of diversity in board members

10th July 2018

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Recently there has been a growing call for more diversity in the boardroom. Many boardrooms across the country are filled with a fairly homogenous group of individuals. Diversity on the board produces the most effective decisions and strategies for the company. It ultimately strengthens corporate governance.

Diversity takes various forms and is inclusive of different elements such as expertise and experience, gender, ethnicity and independence. It is important that board members have a wide range of skills and expertise as a collective to best guide the business. Having diverse board members allows for a company to have many different perspectives.

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An independent non-executive director usually brings an unbiased view that is different from that of shareholders and management. This usually reassures external stakeholders that the company is being run effectively. This perceived distance from the company, means they are able to act as a balancing element in boardroom discussions between different shareholder representatives and managing conflicts of interest affecting board members. Their objectivity also allows them to safeguard the interests of minority shareholders and other stakeholders who may not be represented on the board and who may be unable to speak with a strong voice at shareholder meeting.

A diverse board has a better understanding of the environment the business operates in. As a result, the board is better placed to find and seize opportunities while identifying and minimizing risks. The board is also able to react faster to changes in the environment. Having a wide range of perspectives in the room also means that the status quo is constantly challenged and critically reassessed. The more diverse a board becomes, the wider the networks and business connections the board has access to. A spectrum of diverse perspectives in the boardroom, specifically with regard to skills and expertise, ensures that the board is able to consider an issue from many angles. Incorporating independence into the boardroom also has its own specific advantages.

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Seeing the positive impact of having a diverse board in itself creates an incentive for companies to continue incorporating diversity in the boardroom. Boards that strive for effectiveness and use diversity as way to deliver that effectiveness are likely to perform better than boards who incorporate diversity with compliance in mind. It remains important for boards to strive to create a balance between compliance and performance. A tick-box approach to compliance will not necessarily yield positive results. Rather, companies should strive for a balance and determine how compliance can be viewed in a positive light to enhance their performance as a business.

In the above situation, the company should carefully consider how best to incorporate diversity in the boardroom in a way that will effectively improve the performance of the business. This might involve including other members on the board with elements of diversity, bearing in mind the necessary skill, experience and expertise required, to result in a more balanced board which makes effective decisions for the company. Contact us at SchoemanLaw today if you need to address any corporate governance concerns in your business, or to streamline your existing governance processes to eliminate potential issues.

Written by Sixolile Timothy, Professional Assistant, Attorney, Schoeman Law

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