How to increase board diversity? The Finnish point of view

It was easy for me to choose this highly interesting topic. To seek diverse candidates for board service is an essential part of our job and it’s also what the future requires.

The rise of focus on ethics, corporate social responsibility, and diversity have become critical components of the board of directors’ responsibilities (Fuente et al., 2017; Braverman, 2019). Discussions about the diversity in boards of directors often focus on gender and ethnicity, as well as independence from the firm’s internal pressures. The thrust of the argument in favor of a diverse board is to go beyond selection based upon a prospective members’ fit into one of these categories.

Productive board discussions require a breadth of perspective that is supported by diverse composition. Leszczynska (2018) argued that a board’s composition should reflect diversity in thinking, background, skills, experiences, expertise and a range of tenures that are appropriate given the company’s current and anticipated circumstances. It is reasonable to conclude that diverse backgrounds and experiences on corporate boards strengthen board performance and promote the creation of long-term shareholder value.

Board diversity should be something considered self-evident in today’s modern Finland. But it is not.

Let’s face the facts: 

The FINDIX 2020 comprehensive and profound report compiles publicly available information on the diversity of Finnish listed companies’ executive management and boards. Based on the results, it can be stated that the larger the company is, the more diverse its executive team and board are. In Small Cap companies, the male majority in executive teams and boards is more significant, and there is less internationality than in Mid Cap and Large Cap companies. In addition, the executive teams of small companies consist of people of very similar ages, and the educational background of the board members is very homogeneous.

These findings are not surprising. We are nearing a breaking point, though, and the trend is towards more diversity. One recruitment at a time. The board diversity can be measured by several dimensions. I’m going to narrow down the focus in this article by concentrating on gender diversity, age diversity and diversity in form of nationality. Furthermore, I’m going to share some board diversity best practices that Finnish forerunners already use.

1. Gender diversity can be promoted by having an active pipeline of female candidates

When looking at the full FINDIX data sample, the boards have the best gender balance. In particular, the boards of Large Cap companies are the most balanced. This observation shows that board diversity policies and targets have been effective. The gender balance of executive teams is less equal across all companies.

Effectively creating and cultivating an active pipeline of female candidates is arguably the single most important element of a successful board-inclusion effort.

When conducting a search, this means relying on both personal networks and search firms to identify candidates. Relying only on the former, particularly where a board is composed primarily of men, risks perpetuating the candidate slates from the old networks. A little patience may also be necessary, some of the best candidates may take two or three years to cultivate.

2. Age diversity can be promoted by formalising succession plans

When studying the full FINDIX data, a majority of board members (42%) is born in the 1960s, but the percentage of members born in the 1950s is significantly larger (30%) than in the executive teams. The number of people born in the 1970s on the boards is statistically significantly lower (16%) than in the executive teams.

Boards often address succession planning when a director is close to retiring.

And even at that point, they are not always transparent about what those plans are. Instead, boards should formalise succession plans in advance. And share those plans with all directors. This approach provides more opportunities to source in-demand diverse candidates.

3.     Diversity in form of nationality can be promoted by expanding recruitment efforts

Nationality is the FINDIX variable with the least diversity in the companies analysed. In the full data, the top three board nationalities are as follows:

Citizens of Finland - 77% on boards

Citizens of Sweden - 9.3% on boards

Citizens of the United States - 1.9% on boards

In the fight for global talent, diversity and inclusion policies are valuable recruiting and retention tools. So, while companies have made some progress, there is still more work to be done. The board member nationality should seamlessly be balanced with other factors, such as background and experience. It’s only natural to have someone from the company’s existing or future target market as a board member. Emphasis on these recruitments should be a top priority.

There are other equally relevant diversity dimensions and I’ll get back to them in my near future articles. What are your thoughts on board diversity in today’s Finland? I would like to hear your comments!

Writer: Tomi Arppe