Company boards must serve more than just investors
Firms need to find directors who represent all stakeholders – not just shareholders
‘One-third of the UK’s FTSE 100 board seats may now be occupied by women, but those boards still look similar. Why?’ File photograph: Getty Images/iStockphoto
For the past 20 years, companies have been navigating profound social and technological change, adopting new tools, adapting to new regulations and trying to create a culture in which everyone can thrive.
As part of this, business leaders have been trying to create more diverse boards. We have been ticking boxes on gender, age and ethnicity. We have started looking for people who look different.
One-third of the UK’s FTSE 100 board seats may now be occupied by women, but those boards still look similar. Why? Because they still do the same thing: they primarily serve shareholders. They are still filled with people who have the same skills carved out of similar professions, networks and university degrees.
If we really want to change things, we need to find people who represent not only our investors, but everyone else – from buyers, to suppliers, to local communities, to our natural environment. To do that, we need to go out and find board directors who have different experiences, skills and backgrounds.
Once we have found them, we will see that those people will not only fulfil the new corporate mandate to serve all stakeholders beyond just shareholders, but that they will also bring diversity of thought, skills and experience that will lead to better decision making.
Many companies have acknowledged this need; now we need accountability and action to make it a reality.
How do we find these people? To start with, we need to start looking at not only CVs but life stories too. Yes, directors will need to know what it takes to run a profitable business. But that is no longer enough. As the demands on boards change, it is also time to rethink the terms of membership.
Could we enlarge boards in the short term to bring in new talent that can learn from existing members? Should directors retire after a certain number of years or when their skills are no longer those most necessary to set strategy and provide oversight? Why do we have an audit committee, but not one that measures the impact the company is having on the environment and society at large? All this will require a new mindset.
One of the most interesting changes at McKinsey has been that we have stopped hiring almost exclusively from the usual cadre of business schools. Our senior ranks and key oversight committees now include former surgeons, scientists and technologists. When we hire, we now actively seek out people with different life experiences, including those who come from less privileged backgrounds than previous recruits. That adjustment has proven its value, especially in times of change.
The Covid-19 pandemic has upended our usual routines, as it has for many organisations. It has changed the stakeholders we serve in the private, public and other sectors. The input from the scientists, former public servants and community volunteers we now have in the room has been key for us. We are now better equipped to deal with the complexity of serving many stakeholders at a time of profound change.
We do not know where the next jolt will come from, but even after the disruption of this pandemic fades, I know that our diversity of experience, skills, networks and thought will continue to serve us.
But that diversity will not be enough. Much has rightly been written about the importance of inclusion. But we also need to be more open about our progress, as well as the inevitable disappointments along the way. That starts with the transparency and accountability of the board.
As we move into “a new normal”, we will need to explain every significant appointment; every decision; every target; and every setback. We have to measure, manage, and make public all our efforts.
Not only will this rebuild trust with our stakeholders, it also helps us learn from each other about how to manage the inevitable trade-offs that come with serving so many different stakeholders.
We must explain who our directors are and what makes them fit to govern. We also need to be more open about the decisions the board makes. I serve on business, education and cultural boards, so I know this will take courage, careful consideration and, perhaps, a time lag to ensure we do not give away the ideas, strategy and plans that make us competitive.
But we must show that we are trying in earnest. In a TED talk published this week, I quoted the American poet Gwendolyn Brooks: “We are each other’s harvest; we are each other’s business; we are each other’s magnitude and bond.”
Business is an ever-changing set of human bonds. It is these bonds, with whom we build them, and how we use them, that will determine the harvest we reap. – Copyright The Financial Times Limited 2020
Vivian Hunt is a senior partner at McKinsey & Company