The wisdom of promoting diversity

The wisdom of promoting diversity
Published: January 6 2006 02:00 | Last updated: January 6 2006 02:00
Copyright by the Financial Times

Thirty years after the introduction of the Sex Discrimination Act, the Equal Opportunities Commission wants new laws to close the gender gap. Its annual survey of women in senior management has found the number in top positions is continuing to rise. But the EOC says parity with males will be decades away without further legislation.

Among the FTSE 100 companies, just 10.5 per cent of directors - non-executive and executive - are women. This is up from 8.6 per cent two years ago, an annual increase of 1 percentage point. At that pace, it would take 40 years to achieve gender equality on the boards of Britain's largest listed companies.

Yet these figures should not be used to justify costly regulation to force companies to appoint more women directors. Setting any sort of target would ignore individual company circumstances. It would also lead to token appointments that could damage the interests of employees and shareholders - male and female alike.

Nor is it clear that measures against gender discrimination would produce equal numbers of male and female directors. Much more could be done to help staff combine careers and parenting, as many successful businesses have shown. But it would take radical changes in child-rearing practices to put men and women on a completely equal footing in the jobs market.

That said, there is a shocking lack of diversity in the boardroom. Research commissioned by the Financial Times recently showed that the typical non-executive director is a 58-year-old white male with a background in finance. Such individuals are - of course - estimable but boards need a much wider pool of knowledge and experience.

This is not just "motherhood and apple pie". As James Surowiecki pointed out in The Wisdom of Crowds, homogeneous groups are great at doing what they do well but become progressively less able to investigate alternatives. Bringing in new blood - even if less experienced - makes the group smarter.

A study of large US companies found boards with women directors were better than all-male boards at influencing management. They are also better at recruiting and retaining women employees - a competitive advantage in the war for talent.

Defenders of the status quo rightly say there is a shortage of women with board experience in big companies. And boards overwhelmingly seek specific sector or industry knowledge in recruiting non-executive directors.

Yet as Laura Tyson, dean of London Business School, pointed out in a government-sponsored report in 2003, there is a growing number of talented candidates in the "marzipan layer" just below board level, in smaller companies and in business services firms. Companies that tap into this wider gene pool are likely to be rewarded with superior performance.