Board Dynamics and the Influence of Professional Background, Gender and Ethnic Diversity of Directors

Topics: Corporate governance, Board of directors, Non-executive director Pages: 39 (11382 words) Published: September 9, 2010
218

CORPORATE GOVERNANCE

Board Dynamics and the Influence of Professional Background, Gender and Ethnic Diversity of Directors* Nicholas van der Walt** and Coral Ingley
Exploring the appointment of directors of different professional backgrounds, levels of independence, age, gender and ethnicity, this paper develops a taxonomy describing what is meant by diversity on the board and its implications for decision-making. Board configuration is considered in terms of empirical evidence highlighting the criteria used in appointing directors and the associated implications of social capital for board dynamics. Issues raised include the influence of these on board performance and the ability of individual directors to make an effective contribution as board members. The conclusions highlight the various mythologies associated with the value of board diversity. Keywords: Diversity, board composition, social capital, board dynamics, social network ties

Introduction

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*This paper was presented at the 5th International Conference on Corporate Governance and Direction, 8–10 October 2002, at the Centre for Board Effectiveness, Henley Management College. ** Address for correspondence: Department of Management and International Business, Massey University, Albany, Auckland, New Zealand. Tel: 649 443 9799; Fax: 649 441 8109.

orld events, challenges and social trends of the past two decades have forced changes in the composition and functioning of boards of directors. Public initiatives for board reforms are focusing not just on issues of compliance and legislating for tougher regulation of publicly held corporations, but increasingly on how boards work (Simmers, 1998). The call for reform has generated extensive debate over the characteristics of good governance and how to develop more effective boards. As a group, a board of directors combines a mix of competencies and capabilities that collectively represents a pool of social capital for their organisation. The social capital contributed by directors is a measure of the value added by the board in executing its governance function (Carpenter and Westphal, 2001). Used in this sense, the concept of social capital originates in the disciplines of politics and political science.

From a political perspective, the central premise of social capital is that social networks (of which boards of directors and corporate organisations are examples) have value. Social capital arises from the idea of civil society, civic engagement and democratic governance (Putnam, 1995), referring to the collective value of all “social networks” and the inclinations that arise from these networks for the people in them to do things for each other (known as “norms of reciprocity”). The term social capital emphasises a wide variety of specific benefits that flow from the trust, reciprocity, information and cooperation associated with social networks. Social capital creates value for the people linked by the social ties created by these networks and can have flow-on effects beyond the immediate connections as well (Putnam, 1995; The World Bank Group, 1999; Westphal, 1999). Applying this thinking in the corporate context, a board can be viewed as exemplifying such a social network. In the civic context, there are many forms of social capital and the challenge, according to © Blackwell Publishing Ltd 2003. 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

Volume 11

Number 3

July 2003

BOARD DYNAMICS

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the Civic Practices Network as presented in their website, is to locate and mobilise those forms that can contribute to public problemsolving and democratic participation. This means not only making clear distinctions between those forms of civic association that are illiberal and exclusivist, and those that are not. It means understanding how homogeneous forms of social capital based on common racial, class and ethnic ties can complement heterogeneous...
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