Diversity: Do skills matter in the boardroom?

Diversity. Be it in our diet, wardrobe or bedroom, a bit of variety makes things interesting. But is it a good idea in the boardroom?

The NZX, government, media and a raft of other busybodies who, collectively, have not added more than a weevil’s breakfast worth of wealth to the economy, have been lecturing the productive classes on how to make money.

To be fair there is research that mixed boards do better than strictly masculine ones. In 2012, the Harvard Business Review found gender diverse boards had a 50% higher return on equity and similar studies have confirmed this trend.

Some commentators argue women have a different risk-profile from men and boards with women directors are likely to deal better with risk as a result. This is probably true but we need to be careful about a rush to abandon the Stale Pale Male set in favour of a Benetton photo shoot.

For an alternative view see: Genter is right: Old white men should step aside

Directors do not exist for the stock-photo on the 'who we are' picture on the website.

Being a director requires skill, an understanding of business, people, markets and technology. You need to understand the regulatory environment, capital markets, the risk profile of the shareholders and the competition. A good director needs to be able to read a balance sheet, understand when the chief financial officer is lying and if the chief executive is gaming the stock price to boost his bonus.

A competent director needs to understand the Companies Act, health and safety laws and the ever-changing tax rules. They will need to be able to understand a shareholder’s agreement, company constitution and exactly what the PPSR is.

There isn’t any reason why a person with such abilities needs to be a guy. But here is the complication: I might have the latent ability to be a pilot, but as I haven’t the time to master a Cessna, no sane person would come flying with me.

The same is true of directors. Women could master these issues but they do not appear to want to in the same proportion as men. Women make up 29% of the Institute of Directors and from my anecdotal experience, many of this 29% have a lower appetite for joining a board than their male colleagues.

This isn’t a surprise. Women will have noticed that in the last few years the pressure on directors has been ramping up. You can go to jail for failing to follow the new health and safety guidelines. The IRD routinely locks up directors who fail to account for tax and there is the new criminalisation of directors’ breaches in the Companies Act.

We now have the anti-money laundering legislation in addition to the Fair Trading Act and the vast acres of laws and regulations managed by the petty tyrants of the Commerce Commission and the officious bureaucrats at the FMA.

Parliament has been increasing the risks associated with being a director. Consequently the risk-averse are more likely to shy away from many appointments. You don’t need to be an anthropologist to appreciate why this will reduce the desire by some competent women from taking on appointments while their more reckless male comrades rush in.

The optimal level of women on a board will mirror the number of competent women willing to serve on a board. Given the available data this is probably a little less than 29%. Helpfully Chapman Tripp issued a report last month on the 75 largest private firms and found 23% of their directors were female.

This means people who want to be on boards and have the skills to be appointed are getting the nod regardless of their gender. Organisations like Women on Boards and the Institute of Directors are encouraging more women to enter the field but there isn’t any evidence that there is any institutional discrimination.

The role of a board is to run a company. It is a serious business. Boards should not compromise this to pacify the whims of the perpetually disgruntled and, thankfully, they do not appear to be doing so. The health of our economy depends on them resisting the every more shrill demands from the unproductive in the difficult years that lie ahead. 

This is supplied content and not commissioned or paid for by NBR.