Why Board Composition and Diversity are Important in the Boardroom

The requirements of a private company are different to that of a public company with regards to board composition. UK Corporate Governance legislation does not require UK private company boards of directors to be evaluated. However, it is best practice for owners of private companies to look at the composition of their boards. Below are examples of why this is:

– Due to size and nature, a private company will more likely have a board of like-minded directors who know each other. Even if an atmosphere of concord feels pleasant, it can potentially create challenges.

– In reality, some board directors agree to every proposal, every project and every motion of their fellow directors without giving
thorough review and consideration. Some directors may provide their approval or rejection as the right thing to do whilst others may not want to be responsible for ruining the harmony of the board and cause tension by raising questions; some directors may be happy to go with the flow. It is important that new directors being appointed to any board act with independence and any decisions made are for the benefit of the Company.

– New additions to any company board will inevitably bring discussions, viewpoints and perspectives to the boardroom. This will help directors identify and deal with potential issues by challenging proposals or at least questioning them. Boards need to appoint directors with different experiences to explore and discover opportunities, to assess risks, to share valuable insights with their fellow directors and to expand the boards’ understanding of strategic and any operating issues it faces.

– Newly appointed directors can bring not only a diversity of opinions and perspectives, but also a diversity of behaviour and a willingness to openly challenge. This creates an environment of healthy and frank discussions where important decisions can take place. When directors challenge and listen to each other’s opinions, it leads to focused and fact based decision making.

– Having a diverse board with engaged, proactive independent directors who raise questions, suggest alternatives and express disagreements, might not guarantee an increase of productivity, sustainability or improve company’s brand, but does provide any company a chance to achieve their objectives.

– Diversity in the boardroom matters. Owners of private companies need to consider appointing gender and ethnically diverse directors with different social and professional backgrounds which demonstrates commitment to equality of opportunity. This enhances company performance.

– There are a number of characteristics a board should look for when appointing any new director; gender, age, ethnicity, life and business experience, competencies, philosophies. As well as soft skills, openness, tact, ability to listen, ability to develop trust and strength of character are also key.

– There are significant benefits of having a diverse boardroom and companies need to be careful not to approach a diverse board
as a tick box exercise. It is important to find directors who can introduce independent views, perspectives and resolutions to approach problem solving. These qualities are not always obvious without speaking at length to candidates and their references.

It is vital for any company to have the right directors sitting on the board, who are aligned to the company’s ethical standards and values as well as directors with suitable skills and knowledge. Dominion provides independent seasoned UK resident directors who provide and maintain professional standards and operational excellence.

Contact us to discuss your needs:
Michelle O’Flaherty, Country Head, Corporate Services Director
E:michelle.oflaherty@dominiondomore.com DDI: +44 20 3997 8031

Written by a member of Dominion’s London Corporate Services Team