A board of directors is in charge of moving a company ahead while maintaining reasonable control. Collectively, a board must strike the proper balance in resolving challenges while also being responsible to its workers, business partners and society at large. To achieve its primary goal of producing value, the boardroom is best served by having a diverse range of viewpoints.
To that end, the Board Diversity component of PwC's Annual Corporate Directors Survey asks directors to examine several variables, such as gender, ethnicity and tenure, and to identify the extent to which each contributes to the diversity of thinking. For the first time, the survey this year also addresses the role of age diversity among board members, and the responses from today's directors were noteworthy.
Some 90% of directors said age diversity was "very" or "somewhat" essential in attaining thinking diversity, which put it on par with the responses relating to gender and tenure. While these figures represent current board recruiting patterns, it isn't easy to envision them being this high even two or three years ago.
Certainly, the topic of board diversity has been gaining traction in recent times. But the phrase "board diversity" is frequently used as shorthand for women and people from different origins serving on boards while disregarding age.
The influence of millennials
Boards are grappling with the influence of the largest demographic generation in the history of the U.S. -- millennials, who are roughly ages 25 to 40 years old. But they are unsure if they're ready. Studies show millennials vary sharply from previous generations regarding purchasing habits, goals, communication methods and their outlook on the future.
Nevertheless, businesses must be prepared to adapt as millennials approach their peak earning and spending years. Although having a younger director on the board does not ensure that the firm will "understand millennials," it can help bridge the divide.
The importance of age diversity at boardroom tables
Boards have long held that relevant expertise comes exclusively with age. But this assumption is no longer correct. Many elements of our daily lives and how we structure our economy and society are being transformed by the growing complexity of digitalization, which necessitates new types of talent and changes the nature of decision-making for companies.
This has helped companies to see the value of having younger board members who can relate to their peers. A large percentage of the world population today is under age 30 and lives in an emerging or developing nations. They comprise the global market for some of the fastest-growing firms and suppliers.
Executives increasingly accept the business argument for racial and gender diversity on boards. Yet age diversity has not received the same level of attention, even though more than half of the world's population is under age 30.
It’s a good time for boards’ nominations and elections committees to abandon the traditional practice of seeking individuals with board experience as a requirement. Instead, talent must be found via a variety of methods.
Why seek young people to join the board of directors?
By recruiting millennials, boards glean a contemporary perspective on how their decisions will affect the entire spectrum of stakeholders, from employees and suppliers to customers and the community, just as companies are broadening their thinking about the value of diversity and recognizing the benefits of cross-generational workforces.
As directors, younger members express issues and opinions that are rarely, if ever, voiced at the boardroom table. However, bringing in new directors is not enough. Boards must also prepare them for success by combining onboarding, integration and an open-minded and courteous approach toward their contributions.
A new type of board is set to emerge
Long-serving directors focused on governance and risk management will likely work alongside members of the next generation selected for their superior domain knowledge or real-world experience in transformational environments. Still, their tenure will likely be shorter than the current average.
But boards that want to keep on top of pressing challenges should consider adding at least one next-gen director, not just for their topic expertise, but also for their ability to inject new views to the table. Next-generation directors can have a lasting impact on the board's effectiveness during an era of change if they are backed by a supportive board chair and open-minded directors.
Support for adding younger board members is spurred by the following:
- Effective corporate governance necessitates a diverse range of viewpoints on the board. Multiple perspectives allow for a better-informed decision-making process, and a board of directors has to consider all the views of all potential stakeholders
- To confront complex challenges, boards need the ability to draw on a wide range of experience. Having different perspectives is an asset in the era of increasingly sophisticated technological change. The best decisions emanate from discussions where opposing views are presented.
- Gender and racial diversity strategies are still in the process of being refined for boards. But increased awareness of the dangers of homogeneity over the last decade has resulted in more diversity in the boardroom. Adding younger board members is just another facet of diversity.
- As they get experienced in dealing with broader diversity, boards grow more appreciative of having a wider swath of views.
- Challenging the status quo is good for business. "I helped people transition from the concept of 'being different is terrible,' to 'being different is good," said one woman director with more than two decades on the board of directors.
- Note that while several female directors who responded to the survey acknowledged that gender had a part in their initial directorship nominations, they did not believe it was a continuing one.