The issue of diversity on Boards of Directors is increasingly debated given the concern to ensure gender equality in the corporate world and, consequently, political and social pressure to scrutinize the diversity of Boards of Directors is increasingly accentuated.

In practice, the aim is to understand whether a heterogeneous group is capable of executing the strategic and tactical decisions appropriate to the sustainable future of the company. In this article, we explore the benefits, challenges and importance of ensuring diversity on the Board.

The Role of the Board of Directors

The Board of Directors (BOD) is responsible for leading and overseeing the company, ensuring that the interests of all stakeholders involved are protected. One of its core functions is to align the interests of executive directors with those of shareholders.

According to the OECD, the main contributions of the BOD include: Defining and guiding the company's strategy, including business plans, budgets and risk policies. Overseeing corporate governance and implementing improvements where necessary.

Ensuring that directors' remuneration is aligned with the company's long-term objectives. Recruiting, monitoring and, if necessary, replacing executive directors. Ensuring a transparent process for nominating and electing board members. Ensuring the integrity of the company's financial and audit systems.

Managing potential conflicts of interest between the management team and the BOD. Monitoring information disclosure and communication with the market.

The ambition for more effective corporate governance is one of the determining factors in ensuring diversity on Boards of Directors.

What Does Diversity in the Board of Directors Mean?

Diversity on Boards of Directors can be classified into two main types:

• Observable diversity : Refers to visible characteristics such as gender, age, race, ethnicity, and nationality;
• Unobservable diversity : Includes elements such as academic training, professional experience, technical, analytical and social skills.

The traditional composition of boards has been dominated by individuals with solid experience and academic backgrounds, usually in the middle ages.

However, this trend is gradually changing and there is a growing effort to promote age and gender diversity, in order to stimulate different business perspectives across age groups.

The inclusion of different age groups brings numerous advantages. While senior members, who occupy leadership positions where strategic decision-making is essential, bring their wisdom, professional experience and, generally, more financial resources, younger professionals can add their energy, dynamism, innovation and ambition.

Cultural diversity is also a relevant factor. While internal managers (insiders) have greater knowledge about the company's projects and operations, external managers (outsiders) contribute different perspectives and international experiences, promoting more informed and balanced decisions.

Independence within the Board of Directors is another key factor in ensuring objectivity in decisions, which is possible through the majority or exclusive participation of independent administrators in specific committees and with the separation of the role of the Chairman of the Board of Directors and the Executive Committee.

The IPCG Corporate Governance Code recommends that the number of non-executive directors should always be greater than the number of executive directors, thus reinforcing impartiality and protecting the interests of Shareholders.

One of the main causes of the Board of Directors' inefficiency is precisely related to the performance of its supervisory function, since there is no proportional relationship between executive and non-executive directors, with a low representation of independent directors.

It is within this context that the IPCG Corporate Governance Code recommends that the number of non-executive directors be greater than that of executive directors.

In this way, there is a conviction that independent directors improve the objectivity of actions within the Board of Directors, ensuring the protection of the interests of Shareholders and directors. The separation of functions model promotes a healthy balance with the overall corporate governance of an organization.

Advantages and Challenges of a Diverse Board of Directors

The main benefits of diversity include:

• Greater variety of opinions, reducing the risk of "groupthink";
• Fewer conflicts of interest;

• Better quality of debates, with different perspectives enriching decisions.

In a room where different perspectives prevail, decision-making tends to be more informed and balanced, considering different risks and opportunities. Different ideas foster creativity and innovation, thus enriching Board discussions.

However, there are also challenges, such as the difficulty of coordination between members with different profiles, lower levels of intra-group trust and slower and more confusing communication processes.

According to the IPCG, companies should define clear criteria for the selection of new board members, considering not only individual attributes such as skills, integrity and experience, but also diversity in terms of gender, academic background, professional experience and socio-cultural background.

In addition to greater innovation and creativity, a diverse and inclusive board of directors fosters more informed, balanced decisions and a better reputation, making it more attractive as an employer.

A diversified Board includes innovation-oriented profiles, willing to take risks, but also analytical and results-oriented profiles, which delve deeper into analyses and help make decisions taking into account several variables, carefully consider cost/benefit, and empathetic and social profiles.

We can conclude that diversity on the Board of Directors is not only a matter of social justice, but also a smart strategy that contributes to the success and sustainability of organizations.

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