The Director’s Dilemma – June 2024 Edition

June 03, 2024 Share this article:

Directors Dilemma June 2024

Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

Contribution by Sandra Olive, is the Managing Partner At Bäcker & Partners / AltoPartners Argentina, Chair of Group 244 Vistage Worldwide, and a member of AESC Council of the Americas. She is based in Buenos Aires, Argentina.

This edition of the newsletter was first published on The Director’s Dilemma website and the full newsletter is available for viewing here. To subscribe to future editions of the newsletter, click here

The Director’s Dilemma - June 2024

This month we consider how a chair can enhance board composition in an employee-owned business.

Nico is Managing Director of a professional services consultancy that operates worldwide. The company has 30% female representation in the workforce, though its annual graduate intake has been around 50% for at least the past 20 years. There is only one female member on the 10-person board.

Nico is under pressure from clients, many of whom are government-owned, to improve the ratio but is unsure how to broach it with the board as, under the constitution, someone would have to step down before another woman could join. He’s worried about tokenism, board skills, and the fact that there are no females in the most senior ranks from which board members are drawn.

He is also worried that, in spite of balanced recruitment, women have left before reaching the senior ranks. He fears there may be something toxic in the workplace that he can’t see or fix because he doesn’t recognise it.

More importantly, how can he get better female representation in senior ranks and on his board before it starts to lose business opportunities?

Sandra’s Answer

This is a common challenge faced by many companies: on one hand, the push for modernization and adherence to ethical standards necessitates greater representation of women on boards; on the other hand, existing company culture may be resistant to such changes.

Unfortunately, these issues cannot be resolved overnight. A substantial shift in the organization’s culture is necessary. This involves addressing critical questions: Why are there so few leadership roles held by women? Is the company culture truly inclusive? Without inclusivity, the company risks alienating customers who prefer to support businesses that align with their values.

Implementing such a transition effectively is a substantial undertaking that will likely take between three to five years. This period is necessary to avoid superficial compliance and instead achieve meaningful change. It is advisable that during this time, the board, which periodically renews its directors, uses these opportunities to conduct a thorough Board Assessment. This assessment should aim to identify which members might need to step down, ensuring that the board’s composition aligns with the broader goals of diversity and inclusion.

Concurrently, the company should undertake a professional Board Search to find suitable replacements for those stepping down, focusing on candidates who can bring diverse perspectives and experiences to the board. This search should be rigorous and tailored to meet the specific needs of the company while advancing its commitment to diversity.

In parallel, it would be beneficial for the company to undertake a deep analysis of its internal culture to pinpoint the gaps and barriers that prevent women from advancing within the organization. Identifying these issues is the first step; the subsequent one involves developing and implementing strategies to close these gaps, thereby fostering an environment where women can thrive and lead.

Overall, this comprehensive process is expected to take between three to five years to accomplish. It requires careful planning, sustained effort, and a genuine commitment to transforming the corporate culture into one that values and promotes diversity at all levels. This not only enhances the company’s ethical standing but also strengthens its appeal to a broader base of customers and stakeholders.

Julie’s Answer

Nico needs to lead.

He should first look at his company constitution and understand the rules for appointing directors. Then he should have a chat with his chair about what needs to change and why. Similarly, he should talk with his HR leader and develop a retention strategy to prevent the haemorrhage of good women from his ranks.

Ideally, he could lead the board to recommend shareholders adopt a constitution change so that external directors can be appointed to the board. They would also need to decide whether to increase board size by adding independent directors to the ten executive directors, or to reduce board size in keeping with modern governance norms.

Then Nico needs to consider the skills matrix, what skills to retain from the executive directors and what skills to add to generate additional value and insights.

It is likely that his shareholders will initially want to retain a majority of executive directors and only be comfortable moving to a majority independent board after some time and success.

Whilst he is looking at modernising his constitution, he should consider instituting review, training, term and tenure arrangements to ensure that the board skills can be kept fresh and relevant in future.

It is always hard to ask a director to stand aside but good directors know that they serve the company’s interests, not their own, and if asked to leave in a respectful manner, they will likely do so. He shouldn’t waste any time in making his requests.