True diversity
True diversity extends far wider than race and gender. Indeed, real diversity means that there is a wide variation in core skills and expertise, age/generation and even nationality. In any high performing organisation, you will usually find a very diverse group of people executing on the strategy and leadership.
If one takes a closer look, JSE listed companies are still being led by people who are not truly diverse in their makeup. Arguably, this is the result of a flawed approach to evaluating board competence. In South Africa, the evaluation of a board member's relevance and competence often defaults to his or her ability to navigate the risk, audit and compliance responsibilities of a listed entity. However, as mandated in King iii, "The Board should appreciate that strategy, risk, performance and sustainability are inseparable." So considering that a board's responsibility is to influence and enable company strategy (and ensure future sustainability and shareholder returns), the evaluation of the overall board competence must expand itself further - and consider its ability to participate effectively in the company's strategic direction.
Moreover, diversity is becoming increasingly critical in a business environment characterised by rapid change and constant disruption. Advisory firm PwC's 18th Annual Global CEO survey revealed that in order to survive in a tough market, companies are looking to compete in new industries/geographies; serve new customer needs; and innovate and leverage technology such as Big Data and analytics. The makeup of boardrooms should closely reflect these priorities.
If you consider the board appointment equation with the mindset of delivering on the company's current challenges and future strategy, it should essentially lead to the consideration (and ultimately, the appointment) of board members who are diverse not only in their race, gender and age, but also with regards to their core skills and expertise.
In South Africa, a great example of this can be found in T-Systems South Africa, an innovative ICT company. In 2014, it received several accolades at the Gender Mainstreaming Awards, one of which was for "Women on Boards." The Women on Boards award recognises companies that have successfully transformed their boards whilst ensuring that aspiring female directors are judged on their corporate governance skills and not solely their gender.
In our view, companies need to think about boards in a different way. Today's boards need to be constantly evolving and adapting to meet the company's strategic objectives. Given today's complex business challenges, we believe that the board member composition should be evaluated on a far more regular basis than is current practice - and is always closely aligned to meeting the company's strategic objectives.
Added to this, there needs to be greater investment in and formal development of board leaders. In South Africa, we have a few academic institutions providing board management courses in which eager students can participate as long as they can afford the fees, following which they are awarded certification for an average of three days of attendance.
One potential solution that has been pioneered in Europe is the establishment of a Board Academy. Such an academy has the sole purpose of investing in, educating and creating a broader base of suitable candidates through specialised programmes. In this Academy, interested candidates have to go through stringent assessments and meet specific selection criteria. Candidates are enrolled over a six-month period, after which they need to pass the course content, in order to be accredited. Critically, such a board academy would then facilitate opportunities for successful candidates to gain board experience by drawing on Alumni referrals and interested Chairman and CEOs.
Another key consideration when addressing diversity is that organisations can play a critical role by creating different types of board opportunities - either through a tiered board system or the appointment of Alternate Directors. For example, Alexander Forbes has established a junior board, which will not only build the Alexander Forbes leadership pool but also create a strong pipeline of next generation leaders and essentially add to innovation to various strategic initiatives.
In short, it is imperative that local companies and business leaders consider new and alternative approaches to creating a sustainable pipeline of diverse and talented boardroom candidates.
