Increasing Diversity in German Management and Supervisory Boards – Is it worth the Efforts?

Challenges and Obstacles of Diversity

There are numerous advantages of diverse boards and probably just as many possibilities to enhance the proportion of the so far neglected groups, especially of women. But why does homogeneity still prevail despite the rising interest in the topic and the partly comprehensive implementation of diversity-increasing measures, especially in larger companies? And why are SMEs noticeably reluctant when it comes to action? Besides reasons such as the old boys’ network and the traditional mentality there might exist more obstacles preventing minorities to reach the top of the corporate hierarchies.

According to recent statements about the shortage of women on their supervisory boards, German companies blame, inter alia, the ongoing five-year period of current mandates. Of course, merely adding women would lead to inappropriately large boards. But it seems rather an excuse for not having to commit to specific aims and fixed deadlines. Playing for time cannot be the solution since even if the next rotation takes place in two years’ time, realising the idea of diverse boards will need a certain lead time.

Especially smaller enterprises complain about complex legislation and missing guidance regarding the practical application of Diversity Management instruments. Moreover, handling the immense time effort along with the arising costs of restructuring and adjusting processes is often more difficult for them because of tighter budgets. They also fear lacking acceptance of their clients or even of the own staff in case of assigning a management position to a women or a member of another minority group. Board members may also be afraid of decreasing cohesion and trust in case of having people among them who are ‘different’ and not successfully integrated. A negatively influenced boardroom atmosphere would then lead to declining effectiveness.

Those mental barriers within the organisation also occur in large enterprises and are tough to manage due to the organisational complexity. Resistance towards diversity occurs particularly in monocultures in which being different is put on a level with having deficits. The dominant group claims unconditional adaptation to the homogeneous ideal image, partly unconsciously. However, in order to meet the challenges of demographic, legal, social and economic changes companies have to move towards openness and multiculturalism. Corporate leaders may hesitate because of potential incomprehension or resistance on the part of their employees, but in order to abolish prevailing prejudices the change of mind has to happen on all hierarchical levels. The successful realisation of a new corporate culture requires the participation of each individual.

As figured out in the survey, the major advantage of diverse boards as strategic decision-making group is the variety of opinions, even though this might also have negative effects on the team effectiveness. An open discussion culture may lead to longer meetings and a prolonged decision-making process since conflicts may arise from differing interests among the various actors. Due to social cognitive processes such as stereotyping, diverse teams are more likely to experience affective discussions. Particularly women often take disputes more personally than men do. Those emotional conflicts may be harmful mainly comprising dysfunctional communication. If perceptual barriers cannot be overcome, the ineffective communication will result in confusion, lack of teamwork, and low morale.

Companies may thus worry about further difficulties and costs in case of a deficient inclusion. Indeed, if they fail in entirely integrating women and adapting their boardroom culture where applicable, discrimination will unavoidably result in individual unrest, de-motivation and deteriorated performance, subsequently driving costs on organisational level. But diversity-aware enterprises have the chance of achieving a comparative advantage due to long-term cost minimising – despite an initial increase in expenses – by strategically sustaining the females’ integration.

Guidance and Recommendations for Diversity

To overcome mental barriers and reduce stereotypes a first step is to generate the awareness that prejudices are self-perpetuating, i.e. they are the cause of social exclusion but in turn based on the exclusion. With respect to the gender perspective, it is the women forced into their traditional role as mothers by which the male supremacists feel confirmed in their biased view. Turning this vicious into a virtuous circle can be considered a permanent challenge. Indeed, the rethinking process has already started – at least partly – but will still last for several years. Implementing diversity-promoting measures as well as their external and internal communication are undoubtedly essential, although not directly leading to a change in mind. Making the advantages of diversity aware and tangible would be a subsequent, promising step convincing the sceptics. Deutsche Telekom also anchored this stage of experience in its top-down diversity strategy, realising it by events and workshops.

Further qualification and outstanding performance is crucial for women pursuing a position at top level but as long as female board members will not be an isolated case people have to abandon the idea that a woman first has to prove herself for being admitted. So-called Machtpromotoren (power promoters) may contribute breaking up those stalled thought patterns by using their hierarchical potential to communicate the necessity of the diversity-related paradigm change. Increased variety as innovation is a threat to the status quo and requires positive and negative sanctions to be realised, i.e. a combination of educating, involving and offering advantages or incentives up to forcing to accept the amendments.
This rethinking implies a change of the corporate culture and structure.

Successful realisation of a diversity-increasing concept is more likely in organisations with open systems and flat hierarchies since they are expected to be more flexible. Due to the uniqueness of each company it is difficult to provide guidance how to induce this alteration but common steps are identifying and analysing the present situation and detect possible discriminations in order to subsequently create a shared demand for a higher proportion of women in the corporate boards. Because changing the traditional thought patterns is of high complexity it should be initiated at top management level.

Once the diversity concept is successfully rooted in the individuals’ minds and integrated in the organisational culture, an appropriate level of heterogeneity in the corporate boards will lead to better board performance. What is considered ‘appropriate’ must be evaluated in the individual case because supplementary women do not necessarily imply a higher effectiveness due to the multi-faceted and complex board tasks. It certainly depends on the females’ backgrounds and how they correspond to the current members in order to complement the portfolio of expertise – taking into account that lone women often feel like tokens and will not be regarded as ‘normal’ board members until a crucial number of females are achieved. Referring to this, only a howsoever set quota regulation could obtain fast results since otherwise the recruitment of women would remain few and far between. Thus it is not sufficient merely setting a required percentage of women and then awaiting improvement. Just as little effective are single or separated family-friendly measures without appreciating women as equal careerist. Finally, diversity shall not be considered an obstacle to corporate success and mere cost driver anymore. Still being aware of potential difficulties or setbacks in the implementation process, promoting equal opportunities must have top priority within the organisation. Only in this way opportunity costs due to discrimination can be eliminated, consequently yielding the broad range of diversity-related advantages.

Women pursuing a position at top management level may adopt one of the following two opposed strategies: Either they strictly obey the existing rules and thus avoid tensions within the boardroom, or they only adapt where required, stay true to their principles and convince with their individual leadership style. Whereas the first way seems to be more practical and likely to work out, it will not change the traditional culture. In contrast, women who remain authentic face arduous efforts but will be appreciated for this. The chance of sustained increasing the boards’ effectiveness is much higher as well. Boards cannot perform without a certain level of cohesion and trust, i.e. people must be able to work together but still have own, maybe different opinions. Constructive conflicts arising from diversity-related variety of aspects represent a source of flexibility and enhance the capacity to act successfully due to a better awareness of problems and strengthened social relationships. In mono cultural enterprises those conflicts are avoided by means of dominance in order to create an illusory harmony.

In the end, every company will have to decide on its own, whether it commits to Diversity Management and if so to which extent. There is not a universally valid way leading to a competitive advantage, but rather finding the right composition of different diversity measures which are individually adapted for each enterprise and difficult to copy. After the strategic considerations preconditions of an implementation have to be examined and a concept has to be developed. Due to the intangible character of diversity a specific financial controlling is often neglected but indispensable in order to strategically review the efforts and outcomes. Only in this way, potential benefits and future costs can be assessed and the direction of Diversity Management improved continuously.

A conceivable management tool to communicate, control and monitor the company’s diversity-related vision and strategy is the gender balanced scorecard by means of certain key figures. Referring to Kaplan’s and Norton’s ‘classic’ Balanced Scorecard (BSC), four perspectives exist: financial, customer, internal business processes, and learning and growth – each with four stages determining the objectives, the measures, the targets and the initiatives. This structure can be adopted for establishing the gender balanced scorecard but may also be enhanced by adding further perspectives, as shown underneath.
The organisational culture should be included in the scorecard as the change of corporate climate is inevitable when pursuing a higher level of women on boards. Further perspectives such as society can be added, depending on the specific company-related requirements. All indicators can then be analysed gender-related, i.e. allocating the contribution of men and women to the respective objectives. Of course, the scorecard should be used as instrument for transferring the diversity strategy to all levels of the corporation and the stakeholders, but again should commence at board level due to its importance and according to the model of power promoters.

Gender equality initiatives may be criticised for the difficulty to quantify intangible benefits such as the enhanced corporate image or human or intellectual capital. Assessing the success of diversity-related measures may also represent a problem due to the interdependencies with the impact of non-diversity-related measures. A higher level of motivation, creativity, or productivity can be influenced by several internal and external factors. The balanced scorecard can at least contribute by apportioning the outcomes of various initiatives. Siemens e.g. uses its scorecard to evaluate the internal progress of its diversity strategy by means of the following key figures: professional knowledge, diversity on all levels, top talents, culture and branding, and knowledge sharing, and thus records and communicates f.i. recruitments of women or time of training measures. But in order to make female board members ‘mainstream’ it is crucial to analyse all success factors for both men and women; since only if also a major part of men may work part-time (as an example), gender will not be an issue anymore, equality will be anchored in the minds and thus women promoting measures could be effective.

Conclusion

Along with the continuing demographic change and the increasing internationalisation, the social change of values has led to an intensified encounter of multifarious individuals in the economic life, resulting in a higher relevance of diversity and the possibilities how to manage it. Considering those and further legal developments towards equalisation, the aim was to work out whether comprehensive measures which promote variety at the corporate board level are worth the effort. To this purpose the theoretical basis was set in order to subsequently analyse the reasons for the prevailing homogeneous boards, the advantages and obstacles of diversity and options to enhance the board composition.

To get the most valuable results an online survey was designed and supervisory and advisory board members of German companies were asked to participate. The concentration was then put on gender equality since advancing the proportion of women in the top management has become a highly controversial issue during the past years and also the interviewees mainly focussed on this diversity dimension, along with the board members’ professional experience. Enhanced professionalism and the corresponding knowledge, abilities and experience to accurately fulfil a board member’s duties are also just as much required by the German Corporate Governance Commission as the higher proportion of women at top management level.

Generally speaking, Diversity Management is the managerial reaction on the social changes and thus dealing with the variety of humans. It has recently been present in the media raising different approaches towards diversity: it may be considered as obvious competitive advantage but there are also opponents of this view entirely refusing a heterogeneous top management. And others again may regard diversity as to cause problems but necessary due to equality reasons and thus adapt a corporate culture built on tolerance. Larger companies are expected to be more diverse which was confirmed by the survey and further research: It is particularly the small and medium-sized enterprises which show a critical attitude towards increasing the variety of their boards. More than a third has never dealt with the subject so far, almost as many do not see any advantages of diversity and thus do not assume a rising number of female or foreign board members within their organisation.

This conservative view of recruiting predominantly native, elderly men mostly stems from the deeply embedded mentality of the decision makers. As proved by the survey the most important aspects for being appointed to a supervisory board are one’s integrity and loyalty as well as strategic competencies or the ability to take criticism – and are thus largely independent of any dimension of diversity. But since the lack of women at board level is evident further reasons of the existence of the so-called glass ceiling had to be identified. Considered a main cause, the dominance of the old boys’ networks prevents women from advancing to the top of the corporate hierarchies. The statement of having only few potential female candidates aiming at the lacking qualification might be partly correct to the extent that many women do not have as many years of managerial experience as their male colleagues. This ‘leaking pipeline’ is the result of a conjunction of circumstances: starting with the early decision upon a job allowing better compatibility of family and work, the long-established role allocation regarding the main breadwinner through to the deteriorated situation after re-entering the job after a break, e.g. for raising children.

But the advantages of more diverse boards are evident, also and especially considered by supervisory board members of larger companies, as proved by the survey. Various opinions, experiences and values lead to better decisions, enhanced creativity and innovative strength within the team. At the same time a further competitive edge may be generated by an improved corporate image. Companies supporting the idea of diversity gain good publicity since there has recently been a high focus on the boards’ tasks and their accomplishment which has heated discussions about the right composition of the boards. Successful endeavours towards a well-staffed top management and particularly the strategic advancement of women are thus rewarded with good press increasing the enterprise’s reputation. Reflecting the – also diverse – target groups can be effective for achieving better identification with the company’s values and may attract further customers or investors. Hence even a higher profitability of the entire company is said to be a result of a heterogeneous top management, stated by several studies.

However, it is – despite conceivable tools like a gender balanced scorecard – hardly possible to verify a direct correlation between an increased number of female board members and the company’s financial results. This and further obstacles such as the fear of lacking acceptance of female leaders may keep especially SMEs from implementing or accepting measures which advance women to achieve positions at top management level, in spite of a wide range of possibilities. Most frequently mentioned in the survey were impartial qualification measures proving the aspirants’ professional and at best their personal aptitude for being elected a management or supervisory board member. In order to have a basis of comparison, women have to run through the same qualification or certification process as their male counterparts. Those neutral measures may be criticised for not substituting experience but experiences can only be made when someone gives the women a real chance to. Hence impartial qualification is crucially required but steps towards heterogeneous boards must be taken long beforehand – on behalf of the companies.

Starting with ethical awareness and openness of mind, prejudices can be reduced and the rethinking will lead to a new corporate culture in which female board members are as well-respected as the males. Up to that point, diversity-related communication – external and internal – helps to achieve successful acceptance and internalisation of this ‘new’ perception. Once integrated, an appropriate, company-specific level of diversity will lead to better performance, whereas the respective background and the fit into the boardroom culture have to be considered when appointing new members. For this purpose a good ‘employer brand’ is beneficial and a targeted executive search necessary to attract and recruit the best talents. An increasing number of companies makes use of the expertise from consultants, in particular on board level, and even SMEs benefit from external assistance since they mainly do not have own diversity departments or the capacities to severally deal with diversity issues.
To gradually ‘fill the pipeline’ with highly skilled women who are capable to meet the increased requirements for board members, mentoring can contribute by accelerating their career progress along with building and extending networks. However, before recruiting and advancing women, enhanced working conditions regarding the work-life-balance have to be created. To provide better compatibility of family and work companies have to implement a strategically integrated concept including several instruments such as flexible working hours, the possibility of home office or day care centres for children. In this way also re-entering the job after a break can be facilitated for young mothers and thus release them from their fear of losing their good position.

More and more enterprises voluntarily commit to a diversity-related strategy containing family-friendly measures, special recruiting and mentoring programmes or even establish quotas within their organisation. A more radical way towards gender equalisation of corporate boards is a legally regulated quota system. Nominations of women merely due to the quota, maybe even despite lacking qualification, are feared. In the end, it is necessary to bring the right person to the right place. Regarding the former or current favouritism of male board members as incorrect does not inevitably imply that a future preference of women would be better. Only an evaluation free of prejudice can be the proper approach. And in fact, successful women refuse a strict quota regulation by law since they rather want to be appointed to a board seat because of their qualification, expertise and personality. Finally, further positive role models will advance general rethinking on every career level and thus lead to successful diverse boards which are regarded as normal. However, political efforts in order to create favourable working conditions for women are prerequisite. It is just too simple to put a quota into action as to Management or Supervisory Board neglecting all the other women who care about career but not on a C-Level. Hence, the question to be addressed by politicians is how to really implement work-life-balance favoured surroundings e.g. by means of subsidising places at the kindergarten or at nursery schools awarding companies that employ women or men with children. Quoting the legally defined quota in Norway is too simple as well. There, many companies have changed their legal form to escape from it and only a small group of women benefits while the huge majority doesn’t.
See http://www.faz.net/s/RubC43EEA6BF57E4A09925C1D802785495A/Doc~E20CD2F73B7EF4ECCBD2155EEA6924E00~ATpl~Ecommon~Scontent.html

by Alexandra Sasse, Labbé & Cie.