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Future-proofing boards: the importance of diversity of thought

Governance Advisory Services |Risk & Analytics

By Shai Ganu | March 1, 2018

It's time for companies in Singapore to challenge the traditional, and to focus on the new normal: having board members from more varied backgrounds.

Across industries, companies are increasingly being confronted by new and unprecedented challenges. They are having to deal with the impacts of technology-enabled transformation, understand risks arising from increased automation, including cyber security, and adapt to shifting trends in workforce management, to name just a few. For example, not many boards would have predicted the implications of block-chain technology on business processes, nor the current challenges associated with managing full-time employees, AI enabled workflows, and reliance on contingent workforces.

These new uncertainties create unique problems that require specific expertise and industry experiences. For example, skills in security or computer science will help you understand the complexity of data breaches, while expertise in public relations is critical when it comes to an organisation’s reputation and crisis management.

Are companies prepared for this brave new world? While some companies are beginning to appreciate the importance of these changes, and have started establishing specific functions to address them – experiences are still very mixed at the boardroom level.

Boards today may be missing the critical diversity needed to address ging challenges effectively. If organisations in Singapore do not rethink the composition of their boards and plug the gaps, they may continue to struggle navigating these risks. And, if they don’t change today, boards may fail tomor.

Addressing the gaps

While Singapore’s companies have great leaders, several firms have traditionally taken a nar view when it comes to determining their board composition. Many are sticking to the ‘traditional’ requirements for what has made for an effective board in the past, appointing former executives who approach problems based on past experience and skills. However, this assumes the risks of the future will be the same as those of the past.

That’s not to say that an experienced hand does not add immense value and understand how the business world is changing. Rather, the point is to complement these esteemed board members with new leaders from non-traditional sectors and backgrounds.

There needs to be a mind-set shift where Singapore expands its definition of an ideal non-executive director; placing more emphasis on diversity of thought and experience – covering functional expertise, market experience, geographic exposure, tenure, and gender. Companies need to be moving in a direction where board members have more varied backgrounds than legal, accounting or banking alone, and to a place where they are built with the future in mind.

Diversity needs to go deeper than Gender

Apart from looking at the expertise of candidates, it is equally as important to look at the more traditional gaps we are seeing on Singapore boards: gender, age, and functional expertise.

First and foremost, gender diversity is of utmost importance – both as a business, as well as a societal issue. According to Willis Towers Watson’s Women in Leadership in Asia Pacific report, 30% of companies in Asia Pacific admitted to not having any female board members. This perception of a lack of women in leadership is also felt throughout organisations in Singapore, where more than half of the respondents (56%) said they still see relatively few women in senior day-to-day management positions.

Do regulators need to set quotes for organisations to meet when it comes to women in leadership positions? The answer is no. Fulfilling the gender criteria shouldn’t just be a box to tick on a checklist. Setting quotas can actually drive the wrong behaviour and make gender-based hires become more about affirmative action than actual merit. Rather, there needs to be a mind-set shift where organisations and boards recognise the different skills that female directors bring to the table. For instance, companies with female Chairs or female CEOs tend to be more prudent in risk-taking, and build a stronger culture of mentorship and collaboration.

When it comes to age diversity current practices rightly place emphasis on the years of experience a board candidate has. However, equally as important is the weightage placed on what kind of expertise they bring to the table. This is a point we keep coming back to, but as we find ourselves in a world that is powered and built on the back of technology, we need directors with relevant experiences to advise on digital disruption opportunities and risks – and the fact of the matter is that true digital natives are typically under 40. But how many directors under 40 do you see on boards today? The more progressive companies are beginning to appreciate the need for diversity of thought by appointing directors below the ages of 40 or 45, and also appointing directors with varied tenure on the Board. There is another, very practical reason for doing so – the most important client segment for consumer goods companies also tends to be in this age bracket; so it makes sense for directors to share similar experiences as the companies’ target customers.

On the issue of functional expertise, whilst most Boards have strong and prominent directors with commercial, accounting, and legal backgrounds - what about some of the non-traditional skillsets? For instance, the increasing focus on reputation management warrants greater emphasis on directors with public relations and marketing backgrounds; while the technological shift taking place in almost every industry highlights the importance of leaders well-versed in digital and cyber-security considerations. Also, given most companies assert that people are their most important asset, it follows that boards should have directors with relevant Human Capital expertise.

Singapore’s talent pool

Having outlined some of the new requirements for future board candidates, the question becomes: does Singapore’s talent pool and bench of candidates meet these requirements? In short, yes, but the pool in Singapore is more confined than in other developed markets such as Australia and the UK, where the professional director construct is more prevalent and established. This isn’t to say that the local market is lacking for talent, but the reality is that capable and forward-looking leaders may be overlooked because they don’t necessarily meet the more traditional selection criteria.

So how exactly can companies find and build a pipeline of candidates?

  1. Diversity of thought is key: The first, and most critical step, is moving away from the ‘traditional’ selection criteria. By changing mind-sets and moving in a direction where the new skillsets, expertise and experiences are taken into consideration, companies can significantly increase the pool of capable candidates.
  2.  Look beyond personal networks: Companies in Singapore must also move away from relying on personal contacts when it comes to electing executive and non-executive directors (NED). According to the Singapore Board of Directors Survey 2017, nine out of ten companies currently rely on personal contacts when hiring NEDs. No one person – or small group of people – can have a complete network that takes into account all of the very best candidates.
  3.  Start with Committees: Taking a leaf from several not-for-profit organisations in Singapore and regionally, companies can start ensuring that specialist skillsets are represented on Board committees. For example, Human Capital experts could be appointed to serve as members of the Remuneration and Nominating Committees, even if they are not appointed to serve on the full Board. Some Indonesian companies have adopted this practice where external experts serve as committee members on Remuneration and Audit committees, but they are not appointed as Board members.

By ignoring the need for the right skillsets and experiences, organisations may struggle to navigate the challenges of the new economy. It’s time for them to challenge the traditional, and to focus on the new normal: diversity of thought on boards. The first step is addressing the importance of diversity in their own minds.

First published in The Business Times, Singapore, Thursday 22 February 2018

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