When Diversity Shows its Effect on the Board of Directors, Part 2

The digital transformation poses new challenges for boards of directors. After the first part of this article dealt with the composition of a modern “Smart Board”, the second part shows how the board of directors can do justice to the changed demands through diversity. By Esther-Mirjam de Boer, published in “KMU-Magazin” No. 4, April 2018 The future of the board of directors in stock corporations is becoming more complex and demanding. Responsibility is increasing. We are in the transition phase from the industrial age to the information age. The challenges of these changing conditions have already been discussed in detail in the first part of this article (“KMU-Magazin”, edition 3/2018). Today’s management bodies find themselves in the area of tension between efficiency, the defining paradigm of the outgoing industrial age and agility. The latter is a decisive success criterion in the dawning information age. Respective cultures could not be more different. The success of this cultural transformation for a new age will decide whether a company is fit for the future. In operational terms, numerous companies have long been undergoing change. However, it has not reached the boards of directors yet. In this second part of the article on Smart Boards, the main focus is on concrete approaches to how these aspects can be transferred into successful practice by means of a very deliberately chosen diversity in the board of directors.

The Board of Directors in the succession process

Switzerland has a very high proportion of small and medium-sized enterprises in an international comparison. More than 8000 Swiss public limited companies have more than 50 employees. Together with small companies, they secure two thirds of all jobs. These medium-sized companies are predominantly privately owned and are owner-managed. The board of directors of such an enterprise is still often understood as a formality and is composed, for example, of the owner couple or the company partners as well as the friendly company lawyer or the trustee. This has worked very well for decades – experience and ownership make strategy. But the principle has weaknesses. More than a thousand such companies are currently in the process of succession. Fewer and fewer companies are succeeding in finding a family-internal succession solution or are being taken over by their own managers. The dynamics and requirements of a successful change of generation are changing a great deal as a result. The board of directors of a company in succession is of particular importance. Ideally, it is the board that ensures both continuity and critical distance in times of major change and associated uncertainty. And it is the team that bridges the gap between generations and has a balancing or stabilising effect in conflicts that inevitably arise.

Independence

The independence of the members of the Board of Directors and the diversity of their profiles are extremely important in turbulent times. Why? Independent people can deal with conflicts more pragmatically than those who are involved either as families or operationally. A succession process therefore begins with the Board of Directors before the operational and ownership levels go into change. The generation change is consolidated at the end with the composition of a new board of directors, which is the right body for the subsequent management team and its desired strategy.

Best practice

Independent is a person who does not have a significant interest in the company, who does not operate for the company itself or for direct customers or suppliers, or who has not been involved in the company for a long time, and who, in accordance with international best practice guidelines, has not served on the same Board of Directors for more than twelve years. Independence in the succession process also means that the members of the Board of Directors do not cultivate any particular preference for loyalty to the older or younger generation – or that the various loyalty preferences are at least represented in a balanced manner. This speaks for external members and for a sufficient age mix. And that brings us to the subject of diversity. Diversity can be recognised by the diversity of age, educational background, work experience, life experience, cultural and social background, gender, current professional and life situation and values. Every human being combines several characteristics – the combination of which forms the personal profile. Professor Dr. Martin Hilb, emeritus of the University of St. Gallen, developed a handy tool together with Dr. Nils Jent in 2007, the “Diversity Optima Disk”, with which one can systematically record the individual characteristics in a team with the help of self- and external assessment and form a team profile that makes statements about the existing characteristics and any gaps.

Diversity strategically designed

Now the diversity should not degenerate into arbitrariness, because then it is of no use. Diversity can only be effective if it is strategically relevant, i.e. purposefully designed, in the board of directors. The 30 percent rule known from gender research is important for this: from a share of 30 percent, the corresponding dimension will have a real influence on the company. In concrete terms, this means: Freely based on Hilb/Jent and enriched by our practical experience, one can proceed as follows:

«Comparative Competence»

At least 30 percent of the core target group of the company should be represented on the management board so that “customer perspective” can be directly effective. After all, customers are existential. The following questions are relevant: Who influences the decision on the order or purchase? Are these mainly under the age of 50? Mainly women? Craftsmen? Teachers? Old people? Young people? Engineers? Supply managers?

«Know-how strength»

In addition, the professional profiles of the members of the Board of Directors should be relevant to the core business and should be available in many different forms within their relevance. For example: In a technical company it is worthwhile to have people with a business background (at least 30 percent) in the team in addition to engineers, and it is advisable to mix practitioners and academics. Another noteworthy aspect that should be included: People who have raised children in a primarily responsible manner or who have been involved in voluntary work in clubs and in team sports in a managerial function for many years also bring a great deal of management experience with them.

«Future Skills»

In addition, the most important future challenges should be well represented in the panel. If a company is severely affected by a shortage of skilled workers, the involvement of people with strategic personnel skills, such as employer branding and experience with alternative work models, is valuable, as is the involvement of people close to the average age of new employees. If the digital transformation is existential for the company, then it is wise if at least 30 percent of the strategic management board really understand enough about it and at least 30 percent are under 40 years old, i.e. “digital natives”. Well-positioned, these three pragmatic design fields form a solid basis for the good team composition of a sustainable board of directors.

Smart Boards integrate a further dimension.

Hilb/Jent’s “Diversity Optima Disk” describes this as “role strength,” while other diversity models call it “personality. It is crucial for team development to know the strategic challenges and future fields of action of the company in order to find a suitable team composition for their solution. For example, an innovation strategy requires enough creative, visionary, agile talent in the team. For a consolidation strategy, on the other hand, it is extremely important to have sufficient goal-, process- and action-oriented as well as structuring talent in the team. Every person has an individual talent profile. To approach a careful typological analysis and interaction in the management committee, team members can be roughly differentiated according to axes (see figure).

Caption:

The industrial age was strongly influenced by head people: Experience shows that managers must lead the way logically, clearly, drivingly (and often alone) and, in interaction with analytical strategists, optimise efficiency precisely and in a controlled manner: Reduce costs, improve processes, manage risks, etc. The transformation into the information age, i.e. the transition from efficiency to agility, requires a stronger constructive involvement of extraverted belly people: of intuition, creativity and imagination. Instinct and empathy become increasingly important when speed and adaptability are required.

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