Recently, the call to redress the lack of diversity in UK boardrooms seems to have grown louder. In the past few years, a number of studies have established a correlation between the gender balance of a company’s senior leadership team and its financial performance, as well as the ethnic diversity of company boards and financial performance. Meanwhile, during the same period, several European countries, including France and Belgium, have joined Norway in instituting gender quotas in the boardroom. The initial results from these measures are causing many in the UK to question whether quotas should be reconsidered.
These results, however, can be misleading. Quotas may inevitably achieve diversity, but diversity on its own does not lead to improved performance. Typically, when you mix in-groups and out-groups the only guaranteed result is conflict. Regardless of whether this conflict is expressed or suppressed, it often detracts from performance. However, under certain magical conditions, diversity creates conflict that is synergistic – resulting in significantly better performance. We know from academic research in social psychology that two key ingredients make a world of difference here: trust and psychological safety.
Muscles of stigma
Creating trust and psychological safety in diverse groups requires a level of skill. Our natural instincts lead us to identify with those from our in-group and not from our out-group. They lead us to value the opinions of those we deem to be high-status and dismiss the opinions of those we deem to be low-status. These muscles of stigma are deeply programmed and once upon a time were essential for the survival of our species on the savanna. They ensure that in groups that are homogenous and accepting of the status quo, trust and psychological safety are a given.
In diverse groups, these same instincts lead to distrust and reactivity. To overcome this, we must learn to empathise with those who appear to be different from us. We must remain open to understanding the opinions of those who do not appear to be high-status and then exercise judgment in evaluating their merit. For this reason, when trust appears naturally in diverse groups, it is more likely to have been earned. Likewise, when psychological safety occurs naturally in diverse groups, it usually goes deeper. Members not only feel comfortable with each other’s presence, but can also be their authentic selves, express unconventional ideas and respectfully disagree.
Muscles of synergy
Thus, when diversity emerges organically at the top of an organisation, these muscles of synergy are more likely to be present. This is why the studies are able to demonstrate a strong correlation between diversity and high performance.
The problem with quotas is that they are often used like a bandage on an infected wound. They mask unhealthy conditions beneath the surface and can lull us into believing the problem has been solved when this is far from the case. Under the best circumstances, quotas change the diversity makeup of a board but do little to affect performance. This is what we see happening in Norway – a country that already stands out as one of the most advanced when it comes to gender equality. In the 10 years since the quota was implemented, there has been little change in the gender balance of executive board members and little to suggest a trickle-down affect within corporate culture. At their worst, the top-down nature of quotas encourages a lack of ownership for the change, and further reinforces stigmatisation. We see this in the US where women and ethnic minorities appointed under affirmative action policies are often viewed as less qualified, less competent and less legitimate in their role. And yet, there is no evidence that they are less competent or perform less effectively than their counterparts.
Nonetheless, quotas remain tempting. It is difficult to build a pipeline of talented women when they see no one who looks like them at the top, when effective networking requires late-night drinking with the opposite sex or learning to play golf and when company-wide associations of leadership and power seem inherently male. Likewise, cultivating the muscles of synergy is challenging when everyone appears to be the same. The self-perpetuating cycle of demographic elitism needs to be interrupted for the benefit of all, and it is easier to start by changing things at the top.
Investors looking to be responsible stewards of their portfolios should be critical of companies with homogenous boards and supportive of those with explicit targets, but wary of an exclusive focus on quotas. Meaningful change – the type that heals the wound beneath the bandage and leads to better company performance – requires shared ownership of the solution. Investors are in the best position to incentivise this change by gaining a more sophisticated understanding of why diversity matters and how a healthy culture of diversity can be achieved. Only then can they effectively hold companies to account.
Justine Lutterodt is Director of the Centre for Synchronous Leadership, a consultancy and think tank aimed at supporting systemic change in the corporate sector through leadership development. For more information about the Centre, please visit www.synchronousleadership.com.
 McKinsey (2014) Diversity Matters.
 Jehn, KA & Greer, LL. (2013) Diversity as Disagreement: The Role of Group Conflict. The Oxford Handbook of Diversity and Work, 179-191.
 Lutterodt, J. (2015) Diversity as a Litmus Test. Diversity League Table, 62-65
 For example, Ann-Hewitt, S. (2013) Innovation, Diversity and Market Growth.
 Bertrand, M., Black, S., Jensen, S., & Lleras-Muney, A. (2014) Breaking the Glass Ceiling? The Effect of Board Quotas on Female Labor Market Outcomes in Norway, IZA Discussion Paper No. 8266.