Leveraging diverse perspectives to navigate a volatile world and drive sustainable growth
As we approach the close of another challenging year, it’s clear that the Covid-19 pandemic has tested the resilience of individuals, organisations, and countries alike. Despite these difficulties, there have been significant positive developments, particularly in the growing emphasis on sustainability, driven by heightened concerns around climate change and social issues worsened by the pandemic. This shift has also been influenced by the evolving nature of capitalism, moving from a shareholder to a stakeholder focus, in response to an increasingly volatile, uncertain, complex, and ambiguous (VUCA) world. World-changing events, such as the pandemic, often prompt a search for new norms and ideas, leading to calls for greater attention to sustainability in business practices.
One such call was recently reflected in the Singapore Exchange’s (SGX) consultation paper on climate and diversity. A crucial component of this paper advocates for companies to maintain a board diversity policy that includes gender, skills, and experience, alongside related disclosures in their annual reports. This requirement is not only timely but also necessary, especially in today’s dynamic environment. A diverse board, which brings cognitive diversity to the table, can offer varied perspectives on a wide array of issues, from corporate strategy to governance, and from social responsibility to environmental stewardship.
In parallel, organisational resilience has become a critical factor in adapting to a VUCA world. Resilience encompasses aspects such as innovation, strategic adaptability, and brand reputation, all of which are interconnected with sustainability efforts. This raises the question: can board diversity be a driving force for business sustainability and resilience?
Why Isn’t Diversity More Prevalent?
Despite growing awareness, board diversity remains a challenge, with the Council for Board Diversity reporting that only 13.2% of board positions in SGX-listed companies were occupied by women as of June 2021. Interviews conducted for this analysis suggest that barriers to diversity often stem from perceptions that a prospective board member’s background, gender, and demographic traits are secondary to their qualifications and skills. While many companies acknowledge the importance of diversity in theory, unconscious biases and doubts about its true value often lead to maintaining the status quo.
Over the past decade, a growing body of academic research has explored the relationship between board diversity and business resilience and sustainability. While not all studies support the hypothesis, the majority reveal positive connections between the two. For example, a 2018 study titled Board Diversity, Firm Risk, and Corporate Policies found that board diversity positively influenced the quantity and quality of innovation within companies. Another study from Norway, How Does Job-Related Diversity Affect Boards’ Strategic Participation?, concluded that diversity significantly enhanced boards’ strategic involvement.
Additionally, a UK-based 2016 study showed that gender diversity on boards was positively associated with the quality of sustainability reporting. Research from Yale also highlighted that women tend to express greater concern about climate change, which could drive more effective sustainability strategies. In Singapore, a study by the Centre for Governance and Sustainability found a strong positive relationship between board gender diversity and corporate governance quality, further reinforcing the importance of diversity.
Diversity Alone Is Not Sufficient
While research suggests that board diversity can contribute to sustainability and resilience, it is not a panacea. Our interviews and secondary research revealed that the potential benefits of diversity can be diluted if not managed effectively. One such challenge is cognitive conflict, which can arise when diverse perspectives clash. Strong leadership from the chairperson and a healthy board culture are essential to prevent such conflicts from hindering decision-making.
Another challenge is achieving a critical mass of diversity. Appointing a single female director to an otherwise homogenous board may not deliver the desired benefits and can be perceived as tokenism. Companies should be strategic in focusing on aspects of diversity that align with their mission and industry. For instance, while diversity in industry backgrounds can bring valuable knowledge, not all backgrounds will contribute equally to the company’s goals.
Therefore, the SGX’s requirement to disclose the process by which board members are selected, along with the specific attributes they bring to the table, is valuable. Boards should also ensure that members from diverse backgrounds and experiences are able to provide meaningful input across key areas such as strategy, innovation, governance, risk management, and sustainability.
We stand at a pivotal moment in corporate history, as new norms for sustainability are being shaped. Board diversity, especially gender diversity in Singapore, has the potential to not only strengthen business resilience and sustainability but also inspire future generations of boards, placing Singapore at the forefront of the global sustainability movement.
