Board Diversity and Corporate Reputation

The diversity debate has focussed on gender. The move towards gender-balanced Boards will result in a broader range of skill sets and experience at Board level. Fidelio welcomes the inclusion of shareholder and stakeholder expertise at a Non-Executive level adding to diversity and strengthening reputational risk management.

Gillian Karran-Cumberlege


The 30% Club in the UK has sparked a lively debate about Board Diversity with its goal that women should represent 30% of FTSE Board appointments. To achieve this target, the search for female Non-Executive Directors (NEDs) must inevitably reach beyond the C-suite where women are clearly under-represented. Indeed, a recent debate at Cass Business School attended by several FTSE 100 Chairmen concluded that reaching the 30% target would of necessity bring about considerably greater Board diversity in terms of experience and background.

Post the 2008 financial crisis, quite properly regulators are insisting that Boards of banks and insurers comprise experienced individuals with in-depth sector experience. Lone voices have continued to articulate the benefits of diversity. The arguments are various. Non-bankers can more easily profess to not understanding and insist upon clarity, obviously important for risk management. In-depth experience as a consumer can translate into powerful NED advocacy. And a profound understanding of stakeholders, shareholders and the media is critically important in mitigating reputational risk.

Indeed reputational risk features ever more prominently on the Board agenda. Corporates have always been easy targets for popular wrath. The lightning speed of social media can now deliver images and messages that incense and amplify. Recently some of the most highly regarded blue chips have stumbled – BP, Toyota and, of course, the former banking titans. All responsible Boards are concerned about corporate reputation. We argue that a diverse Board is a considerably more effective guardian of corporate reputation.

The Economist made this argument powerfully in the context of Toyota suggesting that greater Board diversity would have equipped the Board better to deal with ugly challenges to a very highly regarded corporate reputation. We concur. Experienced individuals with an understanding of stakeholders and shareholders bring an added dimension to Board discussion and decision-making which can be invaluable at times of crisis and beyond.

If Toyota’s board had included, say, a female German boss, a former American senator and a high-flying Hong Kong lawyer, its response to the (2009) crisis might have been different.

– The Economist – February 11th 2010

As Chairmen and CEOs guard well-earned corporate reputations and nomination committees embrace diversity, we suggest that there is a largely untapped pool of highly talented individuals which are potential NEDs. Corporate Affairs Directors, Communications Directors, and Investor Relations Directors from leading quoted companies are almost uniquely qualified to defend corporate reputation at the coal face. They recognise nascent rumours, understand the complexity of the channels and media by which those rumours are spread, and most importantly have clear and practical views of how to avert or deal with crisis.

Moreover, by definition these corporate gatekeepers have demonstrated great competence as trusted advisors. Those who have reached the pinnacle of their profession within leading FTSE companies, or their international equivalents, will have experience of advising beleaguered CEOs and CFOs in the face of hostile media and markets. This navigational ability is not to be underestimated in a NED.

Beyond risk management a former Corporate Affairs or Investor Relations Director with a top tier track record will add significant value in outreach to stakeholders and shareholders. These constituents are critical in a crisis with BP’s investor base providing an important back stop and Toyota’s customers rallying to its support. A NED that can harness the goodwill of these stakeholder groups does much to boost valuation.

A nominations committee will typically look for previous Board experience when recommending Non-Executive Directors – the catch 22 situation that has arguably given rise to the 30% Club. It should be noted that Corporate Affairs Directors and Communications Directors are often members of the Executive Committee. Less frequently the case with Investor Relations Directors, senior IR professionals will nonetheless be highly accustomed to advising the Board and well versed in governance. They will also have a profound understanding of capital markets and, at the top of their game, the respect of shareholders.

The boardroom is where strategic decisions are made, governance applied and risk overseen. It is therefore imperative that boards are made up of competent high calibre individuals who together offer a mix of skills, experiences and backgrounds. Board appointments must always be made on merit, with the best qualified person getting the job.

– The Davies Report ‘Women on Boards’ – February 2011

For Corporate Affairs and Investor Relations professionals this transition to Non-Executive roles can provide a highly satisfying culmination to a career that all too frequently hits the glass ceiling. Many have become world class specialists in their fields; the current insistence that the next progressive career move has to involve operational and P&L responsibility sometimes makes little sense for the individual and the company.

In summary, we support greater Board diversity. In particular we welcome the strengthening of the Board through a broader range of experience. One largely untapped source of professionals well positioned to assume Non-Executive responsibility is the universe of senior Corporate Affairs, Communications and Investor Relations Directors. A Board’s reputation will be enhanced by demonstrably seeking greater diversity. Gender balance is of course important. Our focus is the benefit to Corporate Reputation from incorporating stakeholder and shareholder expertise in a diverse and balanced Board.


Coming Up…

Overture explores how talent drives valuation. Future editions of Overture will deal with
• The Strategist and the Communicator
• Adding Value to Comp & Bens – Finance or HR?
• The Career Trajectory of the Senior IRO
• Quoted and Unquoted IR – a Convergence
• The Multilingual Sellside
Please contact us with comments or for more information on Fidelio Partners on info@fideliopartners.com

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