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D&O: Boardroom Diversity Critical to Effective Corporate Governance


D&O Boardroom Diversity Critical to Effective Corporate GovernanceHaving a diverse boardroom includes ethnic and gender diversity, as well as diversity in skills, competencies, philosophies and life experiences as well. A diverse board reflects the real world, your clients and customers, and provides a company with several key benefits.

A study by Utah State University’s Alison Cook and Christy Glass, for example, examined the impact of leaders’ diversity on firms’ policies, organizational structure, and strategy. The study found that companies with a higher level of racial diversity in the boardroom — in terms of the number of minority directors and their degree of experience and influence over corporate initiatives — typically implemented stronger governance mechanisms and pursued more breakthrough product improvements. Indeed, Fortune 500 firms with a traditional CEO but a diverse board were the most successful at innovating and establishing effective operational systems, which underlines the need to spread multiculturalism throughout the corporate hierarchy.

In addition, having multiple views on the possible outcomes of any action makes for a decision-making process more likely to take into account the various risks, consequences and implications of possible actions. With a diverse group of directors, you get individuals looking at risk from many angles, drawing upon a range of experiences in understanding opportunities, anticipating challenges and assessing risks.

A diverse board also allows for the group to better anticipate and consider the concerns and perspectives of all key constituencies – shareholder, customers and employees. What’s more, a board needs to constantly challenge itself to keep pace with the changing dynamics a company faces. This is best done through a robust dialogue of differing views as long as they are offered respectfully and listened to carefully.

Diversity in the boardroom is also good for a company’s reputation and brand. Additionally, it sets an example at the top that will hopefully have a trickle-down effect within the organization, and it makes the company knowledgeable and sensitive to a wider variety of groups.

Directors and officers face increased scrutiny and a wider net of exposures. Not only is the right boardroom mix of individuals key in helping to assess and mitigate these risks, but also having a robust Directors & Officers (D&O) Liability insurance program is critical in transferring these risks in the event of a loss. Axis Insurance Services can assist you with securing a D&O program that is right for your organization. Give us a call at (877) 787-5258.

 

 

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Blogged on: August 20, 2015 by Mike Smith
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