lexisnexisip.com

In-house counsel and the case for cognitive diversity

Tuesday 7 September 2021

Credit: Lightspring / Shutterstock

Companies’ approach to diversity has begun to expand to include cognitive diversity, which looks to bring together a range of lived experience in a workplace team. In-House Perspective investigates how doing so can ensure multiple perspectives are heard.

When the issue of diversity first appeared on corporate agendas, the focus was almost entirely on gender and initiatives to get more women on boards. The scope has since broadened to consider race and ethnicity, accelerated by the murder of George Floyd in 2020 and the Black Lives Matter protests that followed.

As the broader societal conversation about diversity and inclusion (D&I) has evolved, so has the corporate response. While initiatives to achieve better diversity of identity, such as gender or race, represent important first steps, some businesses are now starting to think in terms of cognitive diversity.

Cognitive diversity aims to bring together a range of lived experience in a workplace team, so that a variety of perspectives are heard. This approach helps leaders to move away from labels and groupings to think instead about the specific skillsets their organisation needs. Thinking in this way avoids a superficial, compliance-driven approach.

Cognitive diversity helps mitigate risks such as groupthink, which occurs when all members of a group think in the same way because they have the same experiences. This can lead to a lack of challenge when important decisions are made and leave organisations blind to the concerns of their customers and of society.

Cognitive diversity isn’t distinct from more traditional interpretations of diversity, rather it represents the endgame for maximising the benefits of diversity. Deborah Gilshan, founder of The 100% Club – a network for professional women – and an independent adviser on investment stewardship and environmental, social and governance (ESG), argues the steps taken so far are ‘factors or pathways in how you get to cognitive diversity. We’re ultimately looking for differences in how we interpret and think’.

The most important workplace team is the board of directors because it’s the face of the organisation and because its role is to govern the company and create long-term value. Inevitably, the drive for better cognitive diversity will begin in the boardroom. There should be benefits that flow from bringing about change at the top.

If we consider cognitive diversity to be the end goal, then all initiatives to promote more diverse workforces are beneficial and represent steps in the right direction. There are a variety of ways to drive change and the approach can vary by jurisdiction. General counsel have a part to play, working both with the board and with their in-house legal team.

Targets

Ueli Sommer, Co-Chair of the IBA Diversity and Equality Law Committee and Head of the Employment Law Team at Walder Wyss, argues that a constructive approach to targets is to factor diversity in when bonuses are awarded to management. ‘Once you put monetary elements behind targets, they are going to be implemented much faster than just having soft targets,’ he says.

“Once you put monetary elements behind targets, they are going to be implemented much faster than just having soft targets


Ueli Sommer, Co-Chair, IBA Diversity and Equality Law Committee

For Sommer, this approach motivates leaders to nurture talent throughout the organisation, so there’s a wide pool to draw from when a target needs to be met. This avoids a compliance-driven approach. ‘You need to make sure there is a way to the top,’ he says.

Turid Solvang, Founder and Chief Executive Officer of FutureBoards, a project-driven company that aims to build better boards, supports this approach. Recently she has been involved in the launch of the Women in Finance Charter in Norway. One of the Charter’s principles is to link its goals to the pay of those responsible for achieving them.

For Solvang, the person taking responsibility for diversity targets could be the general counsel. ‘We do believe in general counsel,’ she says, ‘and we do believe in the law.’

Government and regulator intervention

There’s increasing appetite from governments and regulators to set diversity requirements. The public’s focus on the social licence of business to operate is intense and regulators are keen to respond to this.

For example, the Bank of England, together with UK regulators the Prudential Regulation Authority and the Financial Conduct Authority, published in July a discussion paper on diversity and inclusion in the financial sector. Entitled Diversity and inclusion in the financial sector – working together to drive change, the paper emphasises the benefits of achieving diversity of thought for effective decision-making and mitigating groupthink and highlights how making the sector more representative will improve the quality of financial products.

In the US, the Securities and Exchange Commission (SEC) approved in early August new Nasdaq rule changes relating to board diversity. The new rules will require those listed on the exchange to have at least two diverse board members, or be required to explain why they don’t. The SEC makes it clear that this should represent the starting point for further action in future.

External interventions like these can be helpful for general counsel promoting the diversity agenda. They can be used as evidence that the conversation is changing and that there is tangible pressure to act, which if ignored could leave the organisation exposed as a laggard.

Hiring with difference in mind

Rethinking the recruitment process is critical to creating a diverse workforce. The board recruitment process has been criticised as particularly opaque. The nominations committee is usually responsible for seeking out new board members and often works with an executive search company.

A 2020 study by KPMG and Ridgeway Partners of UK FTSE100 nominations committees observes that ‘nomination committees are now in the firing line with a wide range of stakeholders from investors to activists to proxy advisors all looking to hold the committee to account for issues including board skills and diversity.’

The study found that nine companies in the FTSE100 have no women on their nominations committee and these companies were doing less well when it came to gender diversity in their executive teams. This suggests a link between diversity in the nominations committee and diversity in executive teams, which could have implications for the pipeline of executive talent to the boardroom.

A report published in July by the UK’s Financial Reporting Council – Board diversity and effectiveness in FTSE350 companies – highlights the critical role of the nominations committee. The report makes recommendations on how this committee can achieve a diversity-friendly approach to recruitment. These include choosing the right search company and providing it with a clear mandate, and ensuring the committee itself is diverse.

The report also makes suggestions for new tactics for the committee. For example, encouraging directors to put themselves in the shoes of under-represented candidates, in order to make board vacancy adverts more appealing to those applicants.

In a report for the Institute of Business Ethics, titled The ethics of diversity and released in December 2020, Gilshan observes that ‘the role that executive search firms play is critical in progressing diversity at the upper echelons of companies.’  

In the UK over 60 search companies have signed up to a voluntary code of conduct. The code encourages signatories to play an active role in promoting and furthering the diversity conversation at all stages of the recruitment process. Perhaps most importantly, it encourages search companies to ‘invest time into developing relationships with the pipeline of future female and ethnically diverse candidates.’

‘The whole concept of how a board works is a lot more under scrutiny now: who is on a board, how are they getting board positions and the board nominations process itself,’ says Gilshan.

“The whole concept of how a board works is a lot more under scrutiny now: who is on a board, how are they getting board positions and the board nominations process itself


Deborah Gilshan, Founder, The 100% Club

For Solvang, realising the benefits of cognitive diversity depends on ‘those people who are actually selecting and electing and hiring […] and their vision of diverse thinking.’ She argues that people in positions of power should be pressured to enact change rather than the emphasis always being on under-represented groups. ‘I’m trying to point the finger at […] those who have the power to really make the change,’ she says. ‘That is the key to the boardroom.’

Often the general counsel will work with the board to achieve good governance. Gilshan argues this could involve highlighting how critical governance risks like groupthink and overboarding – where a board member holds too many positions to be effective in each role – can be related to the cognitive diversity agenda. For example, if a limit were placed on how many positions a director can hold, there would be space for new, more diverse candidates to be hired, bringing with them fresh perspectives that would mitigate the risk of groupthink.

The role of shareholders

Investors are prioritising diversity because they recognise its importance in terms of risk and return and creating long-term value for their clients. Consequently, they are becoming more active and are using all the rights at their disposal to pressure companies to act. Activist investors are beginning to use diversity data to identify under-performing companies.

According to a March report titled Proxy Preview, authored by As You Sow, the Sustainable Investments Institute and Proxy Impact, an unprecedented 68 shareholder resolutions were filed in the US for the 2021 proxy season ‘asking for disclosure of diversity in the workplace and in executive positions,’ as well as information on how companies are ‘rooting out racism’. There have also been shareholder proposals calling for racial audits at some US companies.

With more of the larger asset managers making diversity a priority, it will only take one or two of them to back an activist proposal for it to have real consequences for the board.

‘The power of investor capital on diversity has the potential to be transformational,’ argues Gilshan.

It’s important that boards understand the speed with which the investor perspective on diversity is evolving so they can get ahead of the game. Gilshan argues that general counsel and company secretaries can act as a conduit of shareholder perspectives that the board may be unaware of. Doing so will help keep the board in tune with the mood of investors and avoid exposure to shareholder revolt.

Inclusion and culture

The benefits of cognitive diversity can only be realised if those from under-represented groups feel empowered to contribute their alternative perspectives. Creating an inclusive culture is imperative. Leaders should embrace differing points of view and welcome constructive criticism. This can be a challenging and sometimes uncomfortable process. However, the ability to do this may become one of the hallmarks of effective leadership.

The chair and boardroom culture

The board must model the inclusive culture it wishes to see throughout the organisation, setting the tone from the top. The chair has a critical role to play. As board membership becomes more diverse, the role of the chair in facilitating debate and bringing it to a consensus will become even more important. The chair must be comfortable with challenge and create a culture where it’s encouraged. They must ensure that all perspectives are heard. Traditional ideas about the style and qualifications of effective board members are worth scrutinising, to see if they should be moved away from. Finally, the loudest voice in the room is not always the most insightful and it’s important the chair recognises this.

In cases where the general counsel also holds the company secretary position, they often work closely with the chair to plan and run board meetings. This could include coaching the chair on how to manage the evolving nature of their role. Abhijit Mukhopadhyay is Committee Liaison Officer of the IBA Corporate Counsel Forum and President (Legal) & General Counsel at Hinduja Group. He has 30 years’ experience working as a company secretary and agrees there is scope for this kind of dynamic. ‘Managing the board is an art that can be done by the [chair],’ he says, ‘[but] unless [they have] a very able company secretary it will be difficult for [them] to manage.’

D&I strategies

General counsel can influence D&I strategies through their access to the executive committee. Claire Morris, General Counsel and Group Company Secretary at Masthaven Bank, describes how she has supported the ‘people strand of the strategy.’ Her organisation has created a D&I forum run by volunteers and supported by the executive committee. The forum creates its own agenda, deciding which issues it feels are important. With Morris’ sponsorship a people representative position at the board has been created to be the voice of the D&I forum.

Funke Abimbola is CEO of the Austen Bronte Consultancy, which aims to improve leadership by leveraging the impact of diversity, inclusion, belonging and equity across the business world. Prior to her consultancy work, Abimbola held general counsel and C-Suite positions, most notably at Roche. She advocates a data-driven approach to creating a D&I strategy. She also uses Myers-Briggs workshops to help clients understand board dynamics.

‘I firmly believe in an integrated leadership approach when it comes to driving the D&I agenda,’ says Abimbola. She describes how, before becoming a consultant, she integrated D&I into her day-to-day leadership. ‘This role-modelling then encouraged other leaders to do the same and ensured that D&I was an integral part of their leadership,’ she says.

Abimbola argues that success lies in aligning the D&I strategy with both personal and organisational values, as well as ensuring it is embedded in culture rather than being a separate workstream.

Data, labels and unconscious bias

Developing a D&I strategy can present some challenges. Sommer points out that privacy law in some jurisdictions, such as the EU General Data Protection Regulation, makes it hard if not impossible to collect diversity data. This makes it difficult for the board to build a picture of how diverse the organisation is and understand what action needs to be taken. Employees could provide information on a voluntary basis, but this may not paint a complete picture.

In addition, Sommer argues, ‘a lot of people are just not comfortable with being labelled into a category and they would never come forward even if a company has a programme to foster [a certain area of] diversity.’

For Sommer the solution is for managers to ‘become aware of the diversity issue and […] start to assess their own way of thinking, whether it has any discriminatory aspect. Because when you look at your own decisions in your life, [they’re] very often influenced by unconscious data.’

Solvang, however, is keen to resist the idea of unconscious bias as something that is still relevant. ‘The word unconscious bias, I think we should stop using that, because we know too much to call it unconscious,’ she argues. ‘To me it’s conscious, absolutely conscious bias.’

Solvang and Gilshan both argue that the idea of making the business case for diversity can also be problematic. For Gilshan it’s part of the ‘idea that some people inherently belong, and others have to prove that they do.’ She adds, ‘the focus on the business case has put a lot of pressure on under-represented groups to prove their worth to the bottom line.’

“The word unconscious bias, I think we should stop using that, because we know too much to call it unconscious


Turid Solvang, Founder and Chief Executive Officer, FutureBoards

The return to in-person working

The return to in-person working will be top-of-mind for many general counsel as some jurisdictions begin to move out of lockdown and Covid-19 restrictions are lifted.

Best practice in this area continues to be debated. Many organisations are adopting a hybrid approach as they attempt to accommodate a spectrum of differing employee preferences.

Importantly, this process has offered an opportunity for leaders to listen to employees and understand what works best for them, while also communicating what would work best for the team, and the organisation. This process of re-defining how we work offers a perfect opportunity for leaders such as general counsel to create a more inclusive culture.

Leaders should be conscious of the pros and cons of home working for under-represented groups. There is concern that those who choose to work at home full time may miss out on opportunities to advance their career that arise from being visible in the workplace and actively taking part in its culture. This could have a knock-on effect when developing a diverse pipeline of talent for senior positions.

‘I think it’s important that people understand what the options are [and] understand the potential issues connected with their choice, but that there is a balance,’ argues Morris.

General counsel and the in-house legal team

General counsel are well placed to create cognitive diversity in the in-house legal team. They can use their team as a test case when advocating for cognitive diversity. Having a diverse legal team will help wider efforts to build a more representative talent pipeline for senior positions.

General counsel should address their own biases when recruiting team members, challenge themselves to seek out a broad range of candidates and look specifically for difference.

‘As a leader, you need to have an open mind,’ says Harpreet K Sidhu, Publications Officer of the IBA Corporate Counsel Forum and General Counsel and Privacy Officer at Pethealth Inc – A Fairfax Company. Sidhu is keen to challenge the assumption that the ‘best’ candidates for legal positions necessarily come from what are regarded to be the ‘best’ law schools, or the ‘best’ universities. ‘When I look at diversity, I look at that too, because that’s something I can control as a general counsel,’ she says.

“We all have to look inside ourselves and say, what am I doing to make sure I am exceling in that good character [aspect of being] a lawyer?


Harpreet K Sidhu, Publications Officer, IBA Corporate Counsel Forum

Sidhu feels strongly that general counsel have the power to influence the diversity debate by virtue of being lawyers. ‘Lawyers are very influential business partners,’ she argues, ‘and I think people respect lawyers and listen to what we have to say.’

‘We all have to look inside ourselves and say, what am I doing to make sure I am excelling in that good character [aspect of being] a lawyer?’ she adds. ‘Am I giving back to my community? Am I helping other lawyers to excel? Am I being inclusive?’