It is argued that the board diversity reflects the diversity of the society and community served by the organization. Taking into account the new EU Environmental Social and Governance, ESG, requirements, the radius of the diversity extends beyond the community the organization directly serves. Organizations will have to also consider the community they impact by the activity that organizations perform.

Laura Sata-Leinonen leads the Internal Control function at Neste and is a Boardman Member.

For example, if the community served are people looking for housing, the community impacted would include for example the people who live in the area. Impact could be a harm or a benefit to the community’s economy, health, safety, etc. Impact could also affect the wildlife, micro-climate, and other aspects in the area.

So, what should boards look for, to have adequate people coverage who collectively can make good business decisions? One of the actions should be to increase the diversity of the boards.

Here I share my view based on my 25 years of leadership experience with large international corporations.

Board Members that Understand the Need to Collaborate Across the Value Chain Are Valuable

The First Dimension of diversity of the board composition is of course to have a board that best reflects the interests of the stakeholders, who in the traditional sense are the shareholders, in pursuit of financial gains. Within this dimension, the diversity of the board needs to include people with skills and knowledge that can be industry specific, strategic, financial, organizational, customer related, legal, etc. – Let’s call this the Professional Diversity.

A good example of professional diversity would be Neste BoD. Professional backgrounds consist of senior management roles, such as CEO, EVP of Manufacturing, CFO and Business Control, Human resources, Sales, etc. Industry background of the members covers minerals processing and metals refining, chemical engineering, oil production and selling, petrochemicals, pulp and paper, energy, and food industry.

Laura Sata-Leinonen divides the board compositions needed for boards into five different dimensions.

The Second Dimension of the board diversity needs to cover the power and influence aspect, i.e., people that are able to lift the credibility of the organization and whose opinion and contacts are valued. Let’s call this the Power Diversity (or Richness). Board members with a proven track record and high levels of operative and trust positions elsewhere inside and outside the country, whilst remaining independent, increase the credit worthiness of a company and are a strong positive influence. Venture capitalists and investment background increase trust in capital markets. Some of the best examples can be seen at Nokia, where also former operative leaders are nowadays board members.

The Third Dimension is what I would call Value Chain Diversity. Board composition would benefit from having members that can take the point of view and understand the needs of customers, markets, suppliers, and other business partners involved in the value chain.

Increased globalization and market reach, along with ever-increasing regulatory complexity and growing customer demands for better quality, more efficiency, and customization, make it highly valuable to have board members who recognize the need for business partners to work together across the value chain with the intent to maximize the benefit to their customers. In the EU, we see more and more the value chain aspect being strengthened. For example, at Maersk and Shell, the boards include members with responsibility in ESG, demonstrating that sustainability matters need to be taken into account at board level. In my opinion, a lot more representation would be needed to strengthen this dimension in all EU boards.

Board Members that Represent Different Backgrounds Robust Decision-Making

The Fourth Dimension of a strong board diversity lays on the ability of the boards to attract members representing broader societal interests. These can be, for example, social group influencers or non-profit organizations.

Based on EU CSRD requirements, a company needs to assess the double materiality of its activity. Doing so, an organization’s activity needs to be seen both from the impact the activity gives externally (inside-out), as well as from the impact that the environment, regulations, and society may have to the activity and performance of that organization (the outside-in impact). Either of these impacts can have positive or unwanted effects, and hence board members should understand the needs of a broader stakeholder pool than previously. I would call it the Broad Stakeholder Diversity dimension.

One interesting example I would recall from 2008, when Nokia established an Artists Advisory Council to support the board and the executive leadership. Nokia’s Chief Entertainment Officer Tero Ojanperä at that time said: “Consumers are looking for richer experiences, and of course artists are a source of innovation. Working together will help us understand how they want to be represented through our offerings. It’s really about getting to the source of creative talent and helping them connect through technology.” Later adding “The important point is that everyone in the chain is getting their share.” I think this was quite visionary for the time.

I would add one more diversity component to the picture. The Individual Diversity Dimension. Board members that represent different backgrounds, cultures, viewpoints, practices, beliefs, and mindsets could help provide deeper insight, more robust decision making and would foster more trust, respect, and collaboration in the board.

Please, share your comments and examples that you know best could represent each of these dimensions of the boards’ diversity. What are the characteristics that you would like to see boards having in the future?

Author

Laura Sata-Leinonen leads the Internal Control function at Neste, where she has established the control framework for financial and sustainability reporting. She is also a Boardman Member.

Laura started her career as a lecturer of Economics and has taught in several universities, in Europe and the United States. Later on, she worked for the European Union in the area of European Economic Law harmonization for countries that joined the EU in the mid ‘90s.

Inspired by Nokia’s mission of connecting people, Laura joined Nokia in 1999. For nearly a 20-year career at Nokia, she held senior management roles in Finance and contributed to top and bottom-line financials, organizational and process streamlining, as well as SOX and Compliance. Following the Microsoft acquisition of Nokia Mobile Devices, Laura joined Microsoft as a global director of Controls and Compliance for the unit. Laura has also served as a senior financial adviser to F-Secure, implementing the IFRS15 based financial statements.

Laura holds a master’s degree in political economy and an MBA in International Business, alongside with many other qualifications, such as certified Financial Executive, Board of Directors, SAP, COSO IC, etc.

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