Diversity on Corporate Boards

Introduction

According to the Harvard Business Review article selected, Chief Executive Officer (CEO) have enormous
task to handle. The article terms the role of CEOs and Board of directors to be “a role that is more
challenging than ever.” However, the article asserts that boards would do well to prioritise diversity and
inclusion. Diversity in board membership not only reflects core societal ideals, but is also a key and
quantifiable factor in the success of boards in every industry. There are many benefits to having a
diverse board of directors, but there are few resources available to help business executives tackle this
challenge. A successful board of directors will include members of all backgrounds, ages, genders, races,
and sexual orientations. Having a diverse board of directors is crucial for this reason because it allows
for better decision-making, direction, and risk management.

Understanding whether or if policy action is required or appropriate, and what kind of policy should be
enacted if so, requires first identifying the factors that contribute to the lack of diversity. Knowing what
to expect from a more diverse board of directors is also helpful. Both proponents and detractors of
more diversity on boards of directors have been heard from both scholars and professionals. The
argument against mandated diversity often centres on the fact that it leads to selection based on the
mandatory trait rather than credentials. So, critics of quotas say that it would result in boards with less
qualified people, which will lead to bad business judgments. There is conflicting information on whether
or not increased gender diversity on boards lowers their performance (Baysinger and Butler 2019). The
business argument for board diversity centres on the idea that boards that are too similar in terms of
demographics run the danger of becoming insular and, as a result, may be ill-equipped to succeed in
today's fast-paced, globally competitive marketplace. Actually, there is credible academic data that
shows how boards made up of people from many walks of life produce superior business results
(Baysinger and Butler 2019). Concerns of fairness, inclusiveness, and social justice in the workplace may
be addressed by having boards that reflect the communities they serve.

Overview of Organisational Leadership

As a human being, you undoubtedly have aspirations and hopes for your future happiness and
fulfilment. But alas, it takes more than hopes and aspirations to go anywhere in life. To improve one's
circumstances, it is necessary to take active, concrete measures, and these measures call for a wide
range of specialised knowledge, skills, and abilities. Similarly, businesses need to take action in order to
achieve their desired degree of success and longevity. Scholars and researchers believe that companies
need to accept, adapt, and execute changes in their business model in response to shifting trends,
technology, consumer preferences, and future concerns discussed in the context of these practical
procedures (Mascareño et al. 2020). There is a great deal of literature in this field. Long-term success
requires embracing organisational

long-term prosperity and continued existence as a company. If businesses don't adapt to the constantly
shifting environment, they risk seeing their reputation and market share erode (Boston, MA, 2000).
Although the importance of organisational change has been described in a variety of ways by many
writers, it is generally agreed upon that such change is essential to a company's long-term viability and
success.
Those who see the need of organisational transformation may wonder, "Who will take the initiative to
bring these changes for companies, to take actual steps?" and "Who will be the person in charge of
making this happen?" The importance of leadership in either the management of an organisation or the
handling of the problem of organisational transformation is widely acknowledged by academics and
researchers. A good leader can bring about effective change for an organisation, and this is why the
function of leadership is crucial when tackling the problem of organisational transformation ( Cheema et
al. 2015). Nwachukwu et al. (2017) discuss leadership and assert that leaders are agents of change who
may initiate positive transformation within an organisation. A leader or leaders may play a crucial role in
initiating and executing organisational change by selecting the desired shape of an organisation and
taking the practical measures which are required for the process, as well as by understanding the
necessity and consequence of organisational change.

So, the next logical question is: what kind of leadership is required for effective organisational change?
They agree and recognise that a leader's position is critical for managing organisational change, but they
also note that the process of organisational transformation is highly complicated and tough. The current
situation necessitates a level of leadership that is both capable and effective. According to Mascareño et
al. (2020), a competent leader may be more effective in directing the change process because of the
strong relationship between leadership abilities and successful organisational transformation. Bennis
also recognises the need for a leader with certain traits in order to implement effective change in a
company (Cheema et al. 2015).

Leadership Framework

Having reached the point where we believe that not just leadership, but competent leadership, is
necessary to comprehend, design, and implement the most appropriate change for organisations, the
next manifest is what kind of knowledge, skills, talent, and competencies are required from a leader in
order to bring about a successful organisational change. It's also crucial to understand how the skills of
effective leaders relate to the achievement of organisational transformation. In analysing the qualities of
effective leaders, the authors acknowledge that bringing about organisational transformation entails
envisioning the best possible future for the company and plotting a course to get there. To make this
transition a success, then, we need leadership that is both visionary and creative (Mackey et al. 2017).

To properly see the future envisioned by Mascareño et al. (2020), who define vision as "a mental
representation of a good future," visionary leadership is essential. Theorists also stress that a leader's
ability to think beyond the box boosts his chances of seeing his vision realised (Nwachukwu et al. 2017).
Scientific publications and journals provide light on the topic of organisational transformation, revealing
that leaders with vision and a creative approach are more successful in tackling this challenge.
Leadership's ability to solve a wide range of problems inside an organisation has been the subject of
much study. Scholars have proposed a wide variety of leadership theories and styles for use in a variety
of organisational contexts. In defining and analysing the many traits of leadership, writers often highlight
the importance of certain traits, arguing that a leadership must possess certain traits in order to
effectively deal with a particular phenomenon implementing change effectively in a company. However,
there is little research on the connection between these leadership traits and effective organisational
change.

In light of this discrepancy, it is crucial to take the initiative to research the link between leadership and
the effective transformation of organisations by using "vision" and "innovative approach" as
independent variables. This thesis uses a literature study, case studies, and a suggested model to
examine the connection between a leader's vision and innovation and their ability to effect positive
change inside an organisation. This thesis does not dismiss the importance of other leadership abilities
when discussing vision and creative approach and referring to these words as leadership. Further, the
connection between effective leadership and organisational outcomes rests on a number of other
factors. These features also allow for enquiry into leadership and organisational changes.

Extensive Theoretical Structure

When we consider the word "Organization," two questions immediately pop into our heads. The
primary one is, "What kind of establishment are we talking about here?" In addition, one may wonder,
"Who is in charge?" Leadership has a critical role in guiding businesses, no matter how many other
elements contribute to their success or failure. Having a clear vision is essential for success as a leader.

We shall use the phrases "Vision" and "Innovative Approach" to describe two of the many traits that a
leader might have in light of the knowledge that a leader is a person, and a person can have various
qualities and characteristics. This study aims to discuss how "Vision" and "Innovative Approach" might
improve leadership performance. While other factors and attributes may also have a part in determining
how effective the issue of leadership is one that can be addressed.

Management of the Organisation

Having the ability to manage an organisation is not some special gift that some people are born with and
others are not. It is not only about following instructions and having them checked for accuracy by a
superior. To the contrary, leadership is management's prowess in securing and enforcing the
organisation gains by creating a better working environment where workers can focus on both
corporate objectives and their own individual needs (Nwachukwu et al. 2017). The leadership inside an
organisation plays a crucial part in its development and growth. It may strengthen the resolve of
individuals and groups to persevere through adversity and contribute effectively to the achievement of
the organization's goals.

According to Mackey et al. (2017), a leader is someone who drives an organization's vision and strategy.
Leadership is more important than ever before in the modern age of quickly shifting company trends
and rising consumer expectations. Organizations need need leaders with the foresight to foresee the
changes they'll need to make, as well as the ability to foster the kind of dedication and environment that
will allow their employees and teams to absorb and adapt to those changes. The success and the
survival of an organisation depend on this kind of leadership activity (Mackey et al. 2017).

Just as businesses can't achieve their objectives without using some kind of strategic business process,
an organisation can't reach its goals of success and longevity without the strategic involvement of its
leaders. Leadership leaves its imprints everywhere: in resource allocation, alignment, perception,
emphasis on the future, commitment, and team motivation to achieve organisational objectives, and
confirmation of sustainable progress (Nwachukwu et al. 2017).

Visionary leadership

Leadership entails charting a course for one's company and its many teams. Leadership is meaningless if
the leaders and the people are lost. Therefore, it is essential for leaders to have a distinct goal in mind.
It's possible that illuminating the concept of "word vision" may bring up new images and heavenly
beings associated with it. Vision, as defined by Taylor et al. (2014), is a "mental image of a possible and
desirable future of the organisation," which develops in the minds of leaders and is contingent on their
ability to accurately perceive and intelligently apply the things at hand for the benefit of and longevity of
the organisation. Leadership competencies such as "vision and goal setting," "interpersonal skills and
self knowledge," and "special characteristics that may be concerned with any specific businesses" have
been shown to have a positive impact on organisational performance.

Teams are the foundation of organisations, and getting things done takes everyone pulling together and
putting forth their best effort.

These individuals and groups need a distinct vision of the future to motivate and inspire them to
contribute effectively to the achievement of that goal. The motivations behind their actions and choices
matter much. A leader's vision ensures that an organization's actions and choices are consistent with an
idealised image of the future (Mackey et al. 2017). Kotter argues that the worst case scenario for
businesses is when their employees lose motivation because their work has no purpose without strong
leadership.

Diverse perspectives and experiences in the boardroom benefit both companies and their employees.

The success of a corporation may be influenced favourably by the inclusion of a wide range of
perspectives. Diverse boards tend to help prevent 'groupthink,' a priority when business performance
relies significantly on risk management, SEC Commissioner Kara Stein said in a 2015 address on creating
healthier firms and a better economy (Kara 2015). Stein's talk was on the importance of having women
on corporate boards, and she referenced many studies that showed how beneficial it is to have women
on boards. Journal of Financial Economics authors found that diverse boards are more likely to hold
CEOs responsible for bad stock price performance, and that women are "tougher monitors" with greater
attendance on critical committee assignments (Adams and Ferreira 2009).

Gender-diverse boards may contribute to outstanding financial success for their company beyond traits
that identify effective leaders. "when Fortune 500 businesses were sorted by the number of women
directors on their boards, those in the upper quartile in 2009 recorded 42% better return on sales and
53% larger return on equity than the rest," Stein said (Arguden 2012). Finally, Stein cited MSCI Inc.'s
environmental, social, and governance (ESG) study showing that companies with a larger number of
women on their boards had fewer occurrences of fraud, accounting issues, bribery, and corruption
(Curran 2015). Even while it's hard to establish cause and effect, research shows that workplaces with
more women in leadership roles do better financially.

Chris Brummer, a professor at Georgetown University Law Center, and Leo E. Strine, Jr., a former chief
justice of the Delaware Supreme Court, published a report titled "Duty and Diversity" in which they
broadened the scope of previous studies on board diversity to include consideration of racial and ethnic
diversity (Brummer and Strine 2022). The authors used empirical evidence and the literature of
organisational psychology to conclude that a diverse board is beneficial to businesses. Portfolio
companies with two or more Black, Hispanic, Asian, or female directors saw average earnings growth of
12.3 percent over the prior three years, while portfolio companies with no diverse directors saw average
earnings growth of only 0.5 percent, as noted in a study cited by Brummer and Strine ( Brummer and
Strine 2022). Similar findings were revealed by other financial services companies, including McKinsey,
Citi, and Deloitte, who analysed client companies with ethnically diverse boards and found that they
performed better financially, were more competitive, and had a more positive company culture
(Brummer and Strine 2022). According to Brummer and Strine's review of literature in corporate
organisational theory, diversity aids in both risk management and strategic, long-term planning. These
gains result from the rich perspective that women and people of colour, in particular, bring to the table
due to their unique life experiences (Brummer and Strine 2022).

Fewer studies have been conducted on the effects of anti-discrimination legislation on the LGBTQ
population, but one study has indicated that companies in the United States with such laws in place had
more creative employees and better financial results (Hossain et al. 2020). More studies are being
conducted in this vital field as a result of the current uptick in attention to issues of diversity and
inclusion. A diverse board should ultimately include members from underrepresented groups, such as
those with impairments and veterans.

There is evidence linking a company's performance to a diverse staff at all levels. For instance, a recent
Morningstar research of 685 US and Canadian mid and large market corporations revealed that
organisations with above the median degree of diversity in their top management ranks had superior
one- to five-year returns, compared with less diverse firms, in 84% of instances (Sachin 2021).
Nonetheless, across all industries, the diversity of corporate boards and executive leadership typically
lagged behind that of the firm's workforce (Sachin 2021). A diverse board that can build and model a
corporate culture of diversity, equality, and inclusion is certainly necessary to fully capitalise on diversity
inside the organisation. As a result, many people who have been excluded from leadership roles may be
eligible for promotion if boards were more representative of the population at large.

Advantages of a Diverse Population

Enhanced capacity for making good choices

It is considered that a more diverse board may make better judgments because its members would pay
closer attention to risk management and control, and will have a deeper familiarity with the company's
customers. As was previously noted, directors are tasked with developing plans using analytical
reasoning and creative problem solving. "Groupthink," the tendency to avoid disagreement and quickly
make a conclusion without fully considering all of the relevant information or considering the pros and
cons of each possible course of action in a cohesive in-group setting, is a common hazard in boardroom
decision-making. It is considered that senior management groups are more effective when comprised of
individuals with a variety of abilities, backgrounds, and experiences who can collectively approach
challenges from a wider variety of views, pose more difficult questions, and engage in more robust
discussion (Harjoto et al. 2015). The boardroom dynamic may be altered, and the quality of the
judgments taken is likely to improve, when challenges are analysed from different angles.

It's more probable that a board with a wide range of backgrounds and perspectives will include
members with varying perspectives, ways of thinking, emotional responses, and even tolerance for risk.
This could increase the company's sensitivity to a broader range of possible risks, such as reputation and
compliance risks, and thus provide a more thorough oversight of the organization's operations. If so, this
might lend credence to the idea that boards need more oversight during both their performance
reviews and their decision-making sessions.
In addition, businesses today compete on a worldwide scale. Directors need to have a firm grasp of the
claims of various stakeholders, especially those of consumers, if they are to successfully steer their
organisation toward its stated goals and objectives. A balanced board will include more representation
of users and consumers of its goods in the boardroom to make informed judgement ( Harjoto et al.
2015). Female representation on boards of directors and international representation at large
corporations may be particularly essential for consumer-facing businesses. Because of this, having board
members with different skill sets, areas of expertise, and social networks may help organisations better
understand their stakeholders, build more robust linkages to the external world, and more effectively
respond to stakeholder demands.

Enhancing the use of available talent

Stakeholders are expecting more from directors, in particular from non-executive directors (NEDs).
Having non-executive directors on the board has become a standard practise in many jurisdictions.
However, NEDs are sometimes criticised for not devoting enough time and effort to learning about the
company and its stakeholders in order to effectively monitor the executive board and ensure it is making
sound judgments (Hillman 2015). When looking for board members with certain qualities, one of the
challenges is the small pool of applicants from whom to choose. The issue of a "director scarcity" may be
mitigated and the talent pool optimised by a broader search for directors with a wider variety of skills
and experiences. Therefore, it is critical for businesses to begin diversifying its boards in order to draw
from the underutilised talent pool.

Improvements to the company's image and its standing among investors by being recognised as an
ethical business leader.

Having a heterogeneous board may promote company image via indicating favourably to the internal
and external stakeholders that the firm values varied constituencies and does not discriminate against
minorities in ascending the corporate ladder. The company's management may be keen to present the
company as a socially responsible citizen, and this may signal that all applicants will be given a fair
chance at employment (Hillman 2015). Others have claimed that a diverse board better represents the
people the company serves. This introspection enhances the strategic fit between an organisation and
its external environment by fortifying the social contract between the firm and its stakeholders.
Therefore, it is hypothesised that a diverse board may aid an organisation in earning confidence and
respect from its local community by demonstrating that it values diversity and inclusion.

Furthermore, a growing number of institutional investors have begun to use board diversity as a
criterion in evaluating investment opportunities because I numerous academic studies have found a
positive correlation between board diversity and firm value, and (ii) these investors are increasingly
concerned with CSR. Thus, a diverse board can help the company's standing with investors.

Prices associated with a more inclusive board

There are expenses associated with increasing board diversity. Having a diverse board may be beneficial,
but it also comes with the risk of increased tension amongst members, particularly if new directors from
various backgrounds are seen by the established board as abnormal (Bernile et al. 2018). This might lead
to the board breaking apart into smaller factions, which would decrease group cohesion, damage trust,
and ultimately make people less willing to exchange information amongst themselves.
Tokenism is another term for the false representation of minorities on boards. Minorities are supposed
to provide distinct perspectives and expertise to the boardroom, as discussed above; nevertheless, in
reality, they may feel as if their participation is just to make up the numbers necessary by external
stakeholders (Bernile et al. 2018). This might lead them to minimise their own worth to the company by
underestimating their abilities, accomplishments, and expertise. In addition, the board may make the
sacrifice of overlooking the essential qualities of effective directors in order to fulfil the mandate of
board diversity. When deciding what steps to take to increase board diversity, the board should keep
these expenses in mind.

Directives from regulators requiring more women and minorities on corporate boards

Several strategies exist for increasing board diversity. The present measures used by various regulatory
authorities may be broadly categorised as follows: I via putting quotas on the board; and (ii) improving
disclosures utilising the 'comply or explain' approach. When we talk about quotas, we're referring to the
necessity that a certain percentage of board members have certain backgrounds, experiences, and
perspectives. There has been a relative lack of women on corporate boards for some time, and this new
law aims to remedy that. For instance, since 2008, Norway has required all publicly traded companies to
have at least 40% female representation on their board of directors. The statutory standards for gender
diversity in Spain and France are quite similar. This method expeditiously raises the number of women
on boards and compels businesses to comply with the law.

Transparency and openness are additional tools for fostering a more inclusive board environment.
Companies are obligated to share their diversity policy for director appointments with shareholders and
other stakeholders in accordance with corporate governance laws. Any company that chooses not to
apply these procedures is expected to provide an explanation in their corporate governance report or
something similar. For instance, the United Kingdom's Corporate Governance Code (2010) requires
businesses to I take diversity into account when filling board seats, and (ii) include information in their
annual reports outlining the board's diversity strategy and its progress toward attaining its goals. To
encourage diversity, both Australia and Hong Kong have adopted the 'comply or explain' policy. The
proponents of this view argue that legal requirements, which may be seen excessive in the market,
should take a back seat to a company's actual needs, the talents and abilities of its board members, and
the market as a whole.

Conclusion

Better corporate governance may be achieved with a more diverse board. The most effective boards
consist of a wide range of people who can bring unique perspectives, experiences, perspectives,
expertise, resources, and time to the table. It is unreasonable to expect a single director to be well-
versed in and informed about all facets of a modern organisation due to the wide range of skills,
information, and availability required to properly comprehend and control such an enterprise. It's also
unreasonable to count on individual board members to be involved in every decision. As a result, while
filling most board positions, it is helpful to see people not as individuals but as contributors to the whole
of what it takes to make a successful board.

The chairman of the board and the company's nominating committee are both crucial in carrying out
policies promoting board diversity. As the head of the board, the chairman is responsible for easing the
integration of new members and promoting free flow of ideas and information at both official and
unofficial gatherings. The chairman must also be dedicated to and supportive of mentorship,
networking, and sufficient training for board members in order to establish such a high-performing
team.

Taking into account the board's specific skill set, its corporate character, and its plans, the nominations
committee should formulate a clear recruiting strategy for board members from a wide range of
backgrounds. Members of the committee are responsible for regularly advertising board seats and
analysing where the board may be lacking in skills and competence. In order to have an open and honest
nomination process, they should not depend only on their personal relationships and networks to find
potential candidates. However, the most crucial factor in ensuring the success of board diversity would
likely be for board members to adopt a new mentality that embraces a more diverse board, one in
which they trust one another more and are able to collaborate more efficiently.

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