A new report released today argues that cognitive diversity and “a culture of constructive disagreement” in company boardrooms will lead to better business decisions.
The ‘Great Minds Don’t Think Alike’ report, co-authored by insurance firm Scottish Widows and Dr Johanne Grosvold, Associate Professor at the School of Management, University of Bath, states that cognitive diversity is essential to the long-term success of companies and provides actionable steps to help firms “improve their approach and guide their decision-making process.”
Cognitive diversity means having a range of employees with “different styles of thinking”, including different perspectives, abilities, knowledge, attitudes, information styles, and demographic characteristics.
An absence of cognitive diversity, especially among leadership teams involved in decision-making processes, means business performance can be hindered by ‘groupthink’, a prevalence of employees with similar viewpoints and experiences.
However, Scottish Widows is moving beyond reporting on cognitive diversity to improving it across businesses, where the firm is writing to the top 50 companies it invests in to encourage them to prioritise it.
Here’s a snapshot of the report’s findings:
- Cognitively balanced teams take less time to solve problems. Teams which can consolidate knowledge and are willing to learn new things resolve problems quicker.
- Numerous studies have shown a positive relationship between diversity in leadership teams and financial performance.
- Nationality, ethnicity and regional upbringing were cited as the most common indicators of cognitive diversity. More balanced gender representation positively impacted board dynamics but it was not a guaranteed indicator of cognitive diversity.
- The right leadership is essential to realise the potential of a cognitively balanced team. On their own, cognitive diversity characteristics cannot be guaranteed to deliver benefits.
- The chairperson’s ability to facilitate is vital. The ability to promote robust discussion and make people feel comfortable is crucial, especially when navigating comments or challenges that could beperceived as personal.
- Action on cognitive diversity by companies is limited. Using publicly available information from each of Scottish Widows’ top 25 holdings, the study found only one firm which specifically mentions ‘cognitive diversity’ as something it considers in its working practices.
- Before hiring, the report recommends revisiting recruitment criteria and looking again at which skills really are essential. Strict criteria will restrict broader representation and reduce cognitive diversity.
- Once hired, board members need to feel confident and comfortable to be able to ask sometimes difficult and challenging questions. Quality inductions and support outside the boardroom will allow time to focus on discussion and strategy during the meeting.
- To understand cognitive diversity on boards, firms must test for it. Personality and working style tests are a good place to start, as well as honest discussions about how well the board is functioning. Boards should also actively acknowledge collective cognitive blind spots.
Maria Nazarova-Doyle, Head of Pension Investments and Responsible Investments at Scottish Widows, said: “As our report outlines, the best decisions are made when there is a range of different perspectives and styles of thinking, which embrace constructive challenge and disagreement. That’s why we want to foster a culture within the boardrooms of the companies we invest in of being comfortable with the idea of being uncomfortable.
“Groupthink limits the potential growth of our customers’ savings in the future. In order to deliver the best possible returns for customers, it’s important that boards come from diverse backgrounds and have different styles and approaches. But doing it in practice takes time and commitment, and we recognise that all companies can do better, including ourselves. As an active steward, we will engage with our investee companies to achieve better corporate governance through broader diversity and set this as the standard against which we expect those companies to perform.”
Johanne Grosvold said: “The report shows that companies are aware of the issue of cognitive diversity but are not yet taking systematic action to ensure corporate boards benefit from it.
“In the meantime, companies are exposed to the drawbacks of being governed by a group of people who may be characterised by narrow thinking and less diversity of views.
“Great strides have been made in the past decade at appointing female directors, and now, together with pushing ahead on demographic diversity, improving cognitive diversity is a crucial action for boards that want to be best placed to respond swiftly and innovatively to challenging business environments.”
To read the report in full, click here.