Guest blog: Dr James Lockhart (College of Business, Massey University, New Zealand)
During the late 1990s and early 2000s the hot topic in corporate governance was independent directors. Independent directors, it was proposed at the time, were the very panacea for performance improvement. It didn't really matter what the problem was the solution was independent directors, preferably a majority of them—and fast!
Much effort went into defining an independent director and veritable lists emerged of the much needed characteristics and attributes, especially concerning ownership (the lack thereof); earnings from ownership (the lack thereof); or, employment or former employment (the lack thereof). Sadly, in all that enthusiasm the single most important attribute—independence of thought—was seldom mentioned.
Fast forward a decade: now its diversity’s turn. Diversity, it is now proposed, is the panacea for improvement. Just like independent directors in the past (where no systemic evidence emerged supporting the assumption that independent directors actually improve performance) business is besieged with the idea that diversity on boards will enhance performance. All of the board diversity research conducted to date has been from outside the boardroom. We know that because there have been only four longitudinal studies conducted within the boardroom—one in Norway by Morton Huse; one by a serving board member (no conflicts there); one by a British colleague (Silke Machold); and, one by Peter Crow.
So what is being measured? Just like the independent director research, the diversity research has reduced the boardroom to a simple input-output model. Diversity then refers to the measurable appearance of directors, such as, skin colour, ethnicity, sex, age, qualifications, professional backgrounds, and so on with a focus on sex, colour and age. But does diversity of appearance produce a diversity of opinion? Does diversity of appearance produce different strategic decisions that would not have been considered or not approved in the absence of such diversity on boards?
Given that we don't know how effective men are in the boardroom, it is implausible to argue that we know the effectiveness of women. That is not to suggest we don't need more women on boards—we do. But the focus of the discussion ought to be one of building better boards, boards that are focused on wealth creation, and boards that deliver the company’s aspirations.
As with the independent director argument that preceded it, repetition seems to matter—if something is repeated often enough it will eventually be believed. The discussion is being fuelled by the post-modern/neo-Marxist views currently dominating the B-school landscape, one that will acknowledge diversity everywhere other than amongst Caucasians. And with that, the point is lost. The focus of corporate governance should be on performance, in organisations where the thinking folder is overflowing, not what people look like.
About Dr James Lockhart:
James is a Senior Lecturer at Massey University’s Business School, and a credentialed and practising company director. He teaches and researches in strategic management and corporate governance, and is responsible for the delivery of the College’s business internship and professional practice (Management) courses. He currently holds two directorships; is on the Defence Employers Support Council; and, is a Chartered Member of the Institute of Directors in New Zealand.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.