Board Diversity in Nigeria: The Role of Age & Gender in Corporate Governance and Sustainability
Introduction
Board diversity is a crucial aspect of corporate governance in Nigeria, ensuring that companies benefit from a mix of perspectives, experiences, and expertise. The integration of age, gender, and ethnic diversity on boards enhances decision-making, innovation, and long-term sustainability. As companies seek to strengthen their governance frameworks, the push for more inclusive boardrooms is gaining momentum.1
Why Board Diversity Matters
1. Enhancing Decision-Making
A diverse boardroom allows for multifaceted perspectives, leading to better problem-solving and strategic innovation. Companies with inclusive boards are more agile in responding to market trends and stakeholder expectations.2
2. Reflecting Stakeholder Diversity
Board diversity helps companies align with the needs of their stakeholders, fostering stronger engagement and trust. A company that represents the demographics of its customers and employees is more likely to make informed decisions that drive business success. Also, it maximally aids stakeholders’ engagement.
3. Strengthening Risk Management
Diverse boards are better positioned to identify and mitigate emerging risks. By incorporating a mix of expertise, experiences, and generational perspectives, companies can establish robust governance frameworks that safeguard their interests.
Although the common features of board diversity have been attributed to culture, ethnicity, expertise, race, age, and gender, amongst others, the focus of this article however shall be on age, ethnic, and gender diversity as an important phenomenon of board diversity which have been marginalized in terms of practice.
To further expatiate, the traditional corporate structure interpreted experience with age, and historically, boardrooms have always been a male-dominated environment. However, with different industry needs constantly evolving, it is becoming increasingly important to infuse fresh ideas into the Board’s decision-making process. Companies globally are also starting to recognize the benefits of a gender-balanced board to the growth of their company and not just as a governance ticking-the-box exercise.
The concept of board diversity may have fostered opportunities for women and minorities, but it did not create the requisite acceptability for them on the Board as it is associated with preferential selection based on group membership. In all of this, the ethical perspective is still the most unpopular, especially in Nigeria.
The discourse on ethical diversity in the Nigerian corporate sphere is not related to the demographic categorization of the general population, with the three main ethnic groups (Igbo, Yoruba, and Hausa) taking a front seat. The experience rather has been a case of the South versus the North.
Today, a number of diversity proponents argue that a culturally diverse workforce leads to sustainable competitive advantage and, ultimately, superior performance because they want to take advantage of the contributions that a diverse workforce may make toward customer goodwill, marketing, and other functional areas.3
Board Diversity and Corporate Sustainability Strategies
The period post-COVID-19 pandemic brought about increased sustainability-centered conversations and the use of transformed models to add value to the business operations of a company. This stems from the proposed correlation between a company’s Corporate Sustainability Performance (“CSP”) and its investor relationship. And though the increase in corporate sustainability may not necessarily translate to increased profitability, research shows that companies infusing corporate governance measures, especially in terms of board diversity into their sustainability strategy have a competitive advantage globally4.
In terms of corporate sustainability strategies, it is abundantly clear that women are underrepresented on corporate boards globally and as remediation, places like Norway, Finland, Quebec (Canada), and Spain began the consideration for gender quota legislation for corporate entities.5 These legislations have tried to enact gender quotas to mandate the appointment of women on boards and maintain the recommended ratio of gender balance on such boards.6Across countries, gender quota legislation takes a variety of forms. However, it generally consists of a set gender quota, that is, a percentage of the females on the board (mostly at 40%) for public companies and state-owned entities, a tenure period for implementation, and sanctions for non-compliance. Some of these sanctions were represented in the form of refusal to register these entities, consideration for public subsidies and state contracts, fines, and suspension. In Nigeria, several regulations have attempted to set the pace for gender equality in ensuring board diversity. These are the regulations of the CBN7, the SEC Code of Corporate Governance, and the Nigerian Code of Corporate Governance 2018. While the CBN regulations recommend a minimum of 30% (thirty percent) female representation for the boards of Nigerian commercial banks, the other codes of corporate governance recommend that companies consider gender and diversity goals when filling board vacancies.
Advocates of gender diversity onboards suggest that women are more concerned about the environment and society and are the perfect fit to drive sustainability measures on a board. There is also the fact that diversity on the board projects an innovative image of the company rather than of homogeneity. Based on this argument, the question is, do we sacrifice the quality of directors during a board selection process on the altar of meeting diversity goals or is there a need to create a balance? The upper echelons theory states that the prior knowledge, experience, and values of the directors matter when making strategic decisions that ultimately elevate a firm’s sustainable performance which further points to the need to create that balance and board mix.
It is my opinion, however, that the arguments on gender diversity can be related to inequality and minority representation. This is because although the population of women generally does not place them in the minority bracket (the percentage of men to women is approximately 50.4% to 49.6%)8, in the corporate sphere, women have lesser representation in management positions and therefore qualify as an underrepresented demographic for record purposes.
Socially, ethnic diversity can help individuals create a sense of community connectedness, inclusiveness, or sense of belonging. The major importance is that it helps to infuse a wider range of perspectives of people from different cultural and socio-economic backgrounds. Also, companies that have a higher need for stakeholder engagement benefit from an ethically and culturally diverse board due to the wider market area these companies operate in and their cultural knowledge of local business operations9. However, one may inquire why corporate entities are averse to this concept, and the major reservation is the level of compatibility they have with the Board.
As earlier mentioned, age diversity is also a crucial form of board diversity. It reduces ‘groupthink’ and encourages greater examination of management’s choices thereby reducing the risk of wrongdoings and mismanagement of the company’s business. Arguably, age diversity is recommended for larger boards as it helps to infuse new ideas of corporate behavior and is highly essential for board succession. This allows for a smoother transition of leadership when any director retires and ensures that the board is not put on hold during those instances. The culture of cross-learning and mentoring is also encouraged in this regard.
Also, companies whose business cuts across certain industries such as telecommunications, fintech, energy, fashion, etc. engage customers, employees, and stakeholders from a variety of age groups. The strategic consideration of age diversity on the Board will better position the company to understand the market and make reflective decisions. Another driver for age diversity and inclusivity in sustainability discussions is the generational differentials in the corporate workforce. Studies show that millennials make up over 50% (fifty percent) of the workforce in Africa10 and it is only understandable that this would impact corporate sustainability outcomes.
Board Diversity and the Company’s Performance
The main focus has always been on the significant impact of board diversity on financial performance. Does board diversity increase profitability or is this merely a corporate branding measure? Research shows that there are inconsistencies between financial performance and board diversity. While some record a stock price increase and increased financial investment, others record little or no impact on profitability. However, there is also evidence to show that diverse boards have fewer instances of mismanagement, and mismanagement results in financial losses.
Despite the arguments being postulated in support of board diversity, it is important to note that board diversity is not all peaches and roses, instances of conflict may arise, and the overriding interest of the shareholders has to be put into consideration. Also, there could also be the overwhelming influence of controlling stakeholders who would rather focus on profit maximization than stakeholder satisfaction.
We can also consider the position that board diversity does not encourage the organic growth of business professionals to contribute essentially to that role as director. This is because the choice of appointees may be influenced by corporate sustainability strategies alone. On another note, appointees may also be faced with the constant need to prove themselves especially where their colleagues perceive their appointment as a choice of strategy rather than talent. Thus, it is important to maintain a standard of professional work ethics, respect, and teamwork among directors.
Maximizing Board Diversity as a tool for growth
Socially, beyond the Nigerian corporate environment, driving board diversity in sustainability strategies is an ethically correct move. Maximizing board diversity as a tool can result in the following:
1. Positive Brand Reputation: Board diversity helps to attract sustainability-conscious consumers and investors by projecting a positive image of inclusion and stakeholders’ consideration.
2. Reducing Group think: Group think is a phenomenon in which the members of a group prioritize consensus over critical thinking. Members are more inclined to suppress dissenting views or overlook potential problems to maintain group cohesion which can lead to flawed decision making and expose the company to risks. Diverse boards bring together a wider range of perspectives, experiences, and knowledge ensuring a well-rounded decision-making process.
3. Improved Talent Acquisition: Inclusivity sends a positive message on sustainability. This is an attraction for top talents and would strategically position the company positively in the competitive market.
4. Enhanced Corporate Reputation and Brand Image: Consumers and investors are increasingly paying attention to a company's commitment to diversity and inclusion. A diverse board can enhance a company's reputation, attract more socially conscious consumers and investors, and improve brand image.
5. Development of sustainability outcomes: establishing board diversity and other corporate substantiality strategies in corporate governance leads to the development of sustainability outcomes by contributing to a more just and equitable society.
6. Stronger Stakeholder Management and Access to New Markets: Board diversity can foster positive relationships with stakeholders and by understanding and managing the needs of its different stakeholders, companies can build legitimacy and social capital. This can also lead to invaluable access to new markets and customer subsets helping companies expand their reach and grow their market share.
Conclusion
In conclusion, fostering board diversity has been argued to be a critical tool not only for advancing corporate governance but also for driving sustainability, especially among Nigerian corporate entities. The argument for board diversity extends beyond the compliance narrative; it serves as a catalyst for better decision-making, enhanced innovation, and stronger organizational resilience. Thus, moving beyond the place of setting minimum gender quotas to achieving genuine inclusion and sustainability would require the coordinated efforts of both the government and private sector key players for visible impact. Regulatory interventions such as establishing and maintaining increased legislative quotas, alongside other regulatory tax incentives, can also significantly accelerate its progress.
Embracing diversity at the board level is not just a compliance exercise but a strategic move toward long-term success and inclusivity. However, achieving board diversity also depends on building a robust talent pipeline through inclusive recruitment practices, mentorship, and leadership training programs. By creating opportunities for diverse candidates and embedding diversity into career development programs, organizations can cultivate a future-ready workforce. Ultimately, diverse boards bring varied perspectives that enhance decision-making, promote innovation, and improve overall organizational resilience, paving the way for more sustainable business practices.
We anticipate a broad future for board diversity in Nigeria driven by changing societal expectations, regulatory advancement, and the development of core strategic values. This may stem from a holistic representation on the board to globalized board membership to advanced use of technology in board selection to wider advocacy and stakeholder pressure. In all, the future of board diversity holds unlimited possibilities and opportunities to promote innovation and corporate sustainability, which requires more regulatory input, leveraging new technologies, and policy frameworks to embed diversity as a foundational principle of corporate leadership.
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