A couple of things we learn from a law on #diverseboards

I was recently asked what lessons we learn from the implementation of Italy’s law 120/2011 fostering gender Diversity on corporate Boards (so-called “Golfo Mosca” law).

In summary, this law provided an unexpected positive nudge to the country’s very perception on gender diversity, as well as to its corporate governance.

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Let me comment on both aspects.

Improving the stance on Gender Diversity through reducing unconscious biases

Humanity is thought to have taken its modern form some 200,000 years ago. Back then, when we used to live in the Savannah, in small closely-knit family groups, most of our key decisions were about our “fight or flight” dilemma, when we would face dangerous animals or other dangerous human beings and we had to decide, in as little time as possible, if the best way to save our lives was to “fight” for survival or else “flight away”.

A “snap judgment“, as the word implies, is our unconscious habit to make a decision about people, or reacting to people, in a matter of very few seconds after we meet with that someone or we face the situation we consider as a challenge. A snap judgment is a very precious and important habit, which we have developed over millennia of evolution.

Separately, “similarity bias” happens when we select people that are more similar to us, as opposed to people who appear more different. Evolution has fostered this trait, as a key manner to survive ever since the difficult times when we would live in the Savannah, trying to escape from animals and all sorts of dangers.

The combination of snap judgments and similarity biases is the one reason why gender diversity (but also age diversity, geographic diversity and possibly many other aspects of diversity) is so difficult to happen without a little nudge (such as that of a proper law). The “Golfo-Mosca” law forced shareholders to select new members of the board from the “under-represented gender”, overcoming unconscious fears, to the advantage of merit, competencies and corporate governance.

Without the proper nudge of a similar law, countries that are rightly considered as a cradle for merit and competency-based choices, such as the UK or the US, have not been able to move the presence of women boards swiftly to anywhere above the 15 to 17% mark (end of 2013) as opposed to about 20% in Italy over the same period.

Improving Corporate Governance

Another great result of Italy’s “Golfo-Mosca” law was that overall corporate governance improved. Some leading Italian companies have rightly taken the law as a great opportunity to reduce the number of board members, so as to make better use of their boards. FIAT Chrysler for example, reduced the number of its board members from 16 to 9 in 2012, thereby making it more effective as well as smaller.

We have also seen the development of several training programs for candidates to the position of non-executive director (with Valore D’s “In the Boardroom” being particularly dear to me, as you will read in a separate section).
This actually sets a new benchmark not only for women but for men as well. If shareholders have to select new board members, all things remaining equal, they would inevitably prefer to select candidates that have gone through specific training.

The real next step is to bring gender diversity down from boards to executive levels. We need to foster mentoring as a way to ensure that when it comes to promoting talent, women are in a similar position as men. Similarity bias, as we have described above, impacts very much on the promotion of executives. We want to intervene to reduce the impact of similarity bias in favour of promotions based on talent and merit.

Tommaso Arenare

www.twitter.com/tommaso_arenare

7 thoughts on “A couple of things we learn from a law on #diverseboards

  1. Congratulations Tommaso, not only for the content of your intervention, which is at a high level, but for your desire to communicate what you feel it is worth to be discussed and known. Just a few people have such enthusiasm, and, fortunately, you are among them.
    Patrizio

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  3. Tommaso,
    Appreciate the piece – found it really useful. I just have one question about the following:

    “Another great result of Italy’s “Golfo-Mosca” law was that overall corporate governance improved. Some leading Italian companies have rightly taken the law as a great opportunity to reduce the number of board members, so as to make better use of their boards. FIAT Chrysler for example, reduced the number of its board members from 16 to 9 in 2012, thereby making it more effective as well as smaller.”

    Is this comment founded in more than just the change in sizes of boards? I know that the size of a board can often correlate with how focused it is, and how ‘engaged’ the board level discussion is etc. However, a smaller board doesn’t always inherently mean a better board or better performance.

    In fact, a skeptic might offer the explanation that they culled board members in order to improve the ratio of female:male directors without having to actively seek out so great a number of female directors. Now, this may well have improved board culture, improved statistics for commercial Italian entities and improved performance, but I can’t assume that.

    Do you have any research into improvements of Italian issuer bottom lines (or some-such similar proxy for performance), which flow on from the changes occurring during the period of time you describe here?

    Thanks again!

    • Thank you for your words and for your comment.

      With regards to your question, I will point out a few observations. I can appreciate your “skeptic” view, on the basis of which “they culled board members in order to improve the ratio of female:male directors without having to actively seek out so great a number of female directors”. It can be true. Yet, everything else being equal, by culling a board from 16 to 9 you are implicitly stating that you had 7 people (who happen to be men) you are ready to give up without any significant fear of impacting performance.

      Let me add something more. Further empirical evidence, although yet unpublished, comes from our work in performing Board Reviews of our clients. When we interview, individually and confidentially, board members as part of our assessment of the functioning of boards, we receive clear indications that, again all things being equal, when composition exceeds 15 board members the quality of communication rapidly deteriorates, as well as the appreciation of the board’s effectiveness by its own members.

      Finally, let me add a word of caution. Although there may be serious research trying to link board size with bottom line results, my feeling is that this type of cause – effect relationship is almost impossible to isolate. Hence, I would focus my attention in measuring improvements at board level, in terms of better communication and information flows as well as better interpersonal dynamics. For sure, this will not damage the bottom line.

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