Board of Directors Diversity: Scenario Analysis

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Introduction

Shareholders and investors often demand diversity in the boards of directors. Besides, there is plenty of scientific evidence that gender, cultural, ethnical, racial, age, class, and cognitive diversity enhance decision-making processes. In particular, board diversity contributes to better judgments when making hiring decisions and ensures better financial, economic, and business results. Therefore, there is a need to provide a sound scientific base of psychological theories to demonstrate the necessity of working under diverse leadership. This paper aims to discuss the proposed scenario where the company is changing the board of directors to a more diverse one.

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Psychological Theories in Change Management

Hiring the board of directors can be a decisive step in defining the further development of a business. The competitiveness, leadership, and efficiency of the board of directors have a notable impact on what business decisions will be made in the future. Therefore, the company should pay its utmost attention to this stage of change management. In their book, Steven ten Have, John Rijsman, Wouter ten Have, and Joris Westhof (2018) did a tremendous job of finding and evaluating psychological theories. Theories that best apply to the situation revealed in the scenario will be presented below.

Social Dominance Theory

It must be recognized that the Social Dominance Theory is most suitable for describing the situation presented in the scenario. The theory was invented by Jim Sidanius and Felicia Pratto in 1994 (Have et al., 2018). It reveals the causes of intergroup conflicts and group oppression in the work environment and describes the stereotypes of dominance. Besides, the theory demonstrates interpersonal, intergroup, and institutional mechanisms used to maintain a group social hierarchy. According to the theory, people tend to create large and small social groups with a clear hierarchy. Dominant groups comprise a small number of people who have a disproportionate share of social value and resources, such as status, authority, wealth, and power.

According to the Social Dominance Theory, there are three mechanisms for maintaining group inequality – individual discrimination, institutional discrimination, and behavioral asymmetry. These mechanisms are fixed as a norm in the public consciousness due to legitimate myths. Besides, according to the presented theory, dominance occurs within the framework of age, gender, and arbitrary recruitment systems (Have et al., 2018). According to the peculiarities of systems, power belongs more to middle-aged people than younger adults; men compared to women, and representatives of the clan, caste, social class, and religious sect compared to non-representatives.

At the same time, there is a tendency for age and gender hierarchies to appear within all social systems, and arbitrarily established systems usually appear within social networks that create economic surplus (Have et al., 2018). Most forms of group oppression motivated by racial, ethnic, gender, national, class, and religious differences can be considered as various manifestations of the human tendency to create group social hierarchies. Social hierarchies are usually influenced by balancing forces that strengthen the authority and powers that weaken it. The former create new groups that support social inequality, and the latter creates groups that promote social equality.

Within the group social hierarchy, three types of discrimination can occur. Individual discrimination is a manifestation of daily acts of discrimination of one person against another. Then, institutional discrimination happens under social institutions’ rules and procedures (Have et al., 2018). Systematic terror is another form of discrimination and can be expressed in an official, semi-official, unofficial form, and the form of behavioral asymmetry. Official terror occurs as legally permitted violence and threats by government agencies. Semi-official terror may be carried out by government officials without formal government permission. Unofficial terror is carried out by private individuals, representatives of dominant groups. Finally, behavioral asymmetry is expressed in the form of asymmetric group bias and ideological asymmetry. In organizations, social dominance affects organizational culture, cultural change, leadership, teams, collaboration, communication, and resistance to change.

Social Cognitive Theory

Another theory that demonstrates the importance of ethical and practical leadership in organizations is Social Cognitive Theory. This theory also allows a broader look at the processes of interaction between people within social groups, regardless of hierarchy. The Social Cognitive Theory was created in 1986 by Albert Bandura and is a continuation of the Social Learning Theory representing the observation of others’ actions as the basis of social learning (Have et al., 2018). According to this theory, people’s behavior can change a person’s thinking and attitudes. Thus, scientists found an alternative way of social development, which does not go through exposure to rewards and punishments but is based on the repetition of other people’s actions.

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An essential criterion for personal and professional development is self-efficacy or a person’s confidence in their ability to perform specific actions. Social Cognitive Career Theory is based on Social Cognitive Theory and emphasizes the importance of self-efficacy for professional success. Based on the Social Cognitive Theory, many leadership techniques have been built utilizing the importance of leadership for team development and tolerance for change (Have et al., 2018). Based on this theory, two basic leadership lessons were derived. According to these lessons, organizational culture sets the direction for the development of the company, and leaders set the course for corporate policy.

Justice and Procedural Justice Theory

It is noteworthy that trust is as natural a human aspiration as the creation of hierarchies. It is also essential that a higher level of trust reduces resistance to change and increases overall performance indicators. The Justice Theory describes the processes and importance of procedural justice. Six criteria of procedural fairness of Leventhal are often used to implement procedural justice (Have et al., 2018). These are the rule of consistency implying that distribution procedures must be consistent with people’s ethical needs and the rule of suppression of bias, according to which distribution should be carried out while suppressing decision-makers interests.

Further, the accuracy rule guarantees the accuracy of the information used in the process of resource allocation; the correctness rule makes it possible to change an unfair decision; the rule of representativeness ensures that all parties’ interests are represented. Finally, according to the rule of ethics, the distribution of resources must be consistent with moral and ethical values. It is noteworthy that just processes cause favorable reactions, regardless of the results of procedural operations. Besides, unjust methods cause adverse reactions, irrespective of the results, and this relationship is called a fair process effect. In organizational culture and management, fair processes affect participation, resistance, commitment, leadership, culture, and change capacity. Thus, scientists argue that fair processes help minimize costs and strengthen performance.

Equity Theory

Equity Theory is another trust theory; it implies that people feel most comfortable when they receive a reward equal to the efforts made, no more and no less. This theory was developed by John Adams in 1965 and explained the patterns according to which people evaluate the fairness of remuneration for the work done (Have et al., 2018). It is noteworthy that people measure the conformity of labor and compensation and evaluate the rewards of other people. Underestimated returns can lead to anger or frustration and the desire to invest less. At the same time, excessive returns lead to feelings of guilt, which also stimulates the employee to put less effort.

Moral Disengagement Theory

The Moral Disengagement Theory is critical for understanding the given scenario. It was developed in 1999 by Albert Bandura and “describes mechanisms that prevent people from feeling bad when doing bad things” (Have et al., 2018, p. 200). Such mechanisms are due to the desire to justify behavior when it does not comply with moral standards and self-image. In particular, people usually use such tools as moral justification, euphemisms, a favorable comparison, and the rejection of personal responsibility.

Often, people also turn to ignore the harmful consequences, attributing guilt, and dehumanizing the victims. Scientists note that “many inhumanities operate through legitimate enterprises run by people who contribute to destructive activities by disconnected subdivision of functions and diffusion of responsibility” (Have et al., 2018, p. 201). In this regard, there is a need for social standards that encourage and support humane behavior. It is noteworthy that moral disengagement can be caused by poor leadership and immoral organizational policies. Besides, the emergence of moral disengagement may indicate the existence of unintentional unethical, problematic, or simply incorrect processes.

Critical Analysis of Scenario

In the presented scenario, my psychological consultancy was asked to advise an FTSE 100 company. It was hit by numerous discrimination, sexual harassment, and bullying scandals, and, as a result, half of the board of directors had to step down. It is worth noticing that the previous board was over 90% male and over 95% white upper-middle class. The stakeholders described it as a ‘boys club’ with poor hiring judgment when people were appointed to positions regardless of the availability of necessary professional competencies. Therefore, it was decided to change the organizational policy and create a board of directors, where cultural, cognitive, and gender diversity would be implemented.

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Such a policy must be helpful, and therefore should be based on scientific evidence and theories. Besides, the situation should be analyzed carefully, so that psychological consultancy can give stakeholders practical recommendations. Since half of the directors who were found guilty of a violation of organizational ethics were fired, it can be assumed that the remaining directors were not involved in scandals. Therefore, thanks to them, the organization will be able to make a smooth transition to a new policy. At the same time, given the request for diversity, and since the remaining 50% of directors are middle-aged white men, it is necessary to hire representatives of other groups – women, younger adults, people of different nationalities and ethnic groups. However, diversity cannot be a higher priority than a professional level. Therefore, the hiring process may take a little longer than usual.

It should be noted that the situation presented is a classic example of Social Dominance Theory, since scandals could not break out without significant reasons, the most common of which is the injustice in the distribution of resources and social significance. Besides, the situation was aggravated rapidly due to a lack of diversity. According to the Social Cognitive Theory, employees tend to take examples from each other and especially from leaders. Likely, the organization did not comply with the processes of procedural justice and equity in the allocation of resources. Moreover, the funds could be distributed according to the same principle as appointments to posts. Finally, it is highly likely, that at this stage, employees are facing moral disengagement.

Recommendations

According to the scenario, in the process of appointing previous board members, the board of directors adhered to unprofessional principles and accepted only people with whom they were personally acquainted in their ‘club’. In all likelihood, this situation arose because of the deficient level of cultural, gender, and cognitive diversity, which, according to the Social Dominance Theory, helped the dominant group strengthen its position. Therefore, changing organizational policies and creating a more diverse environment is a highly reasonable decision.

Further, to use better judgment when making hiring decisions, stakeholders should adhere to Justice and Equity Theories, according to which the basis for creating a favorable climate in the organization is employee confidence in procedural justice. Such a guarantee can be ensured only by adhering to the norms of social ethics and morality when hiring employees. At the same time, increasing diversity will not hinder fair processes, if the emphasis is placed on the professional qualities of applicants. Variety implies different points of view regarding important business management issues and the strategic development of the company. Leaders who have formed under different conditions and have different strengths will become more effective teams than the previous board of directors.

Moreover, greater diversity improves the overall judgment within the company and increases the probability of the business. According to the theory of Social Cognition, in social groups, people tend to copy each other’s behavior and change their thinking based on the behavior of other people, especially leaders or role models. Therefore, new leaders and old leaders working together will manage to improve the company’s organizational policy and the direction of business development if stakeholders will have such a request.

Suggestions to Improve Hiring Decisions

After the changes are introduced, and the board of directors is updated, the working environment will change most pleasantly. However, it will be necessary to consolidate the organization’s new values to maintain what has been achieved. It can be done by introducing fair processes in all spheres of working life. Besides, due to the previous board of directors’ misbehavior, there is an unhealthy atmosphere of mistrust and moral disengagement. Therefore, special attention should be paid to building trust in company management and eliminating the consequences of moral disengagement. For example, after hiring new leaders, a festive event aimed at strengthening the team spirit could be held. It will signal to employees that the company intends to move in a new direction. Further, better job satisfaction will increase the retention of valuable workers and reduce staff turnover.

Besides, discriminative communication and social dominance will have to be abandoned, since it probably occurred due to the unfair behavior of the former board of directors, who were all white men from the upper class. Since people tend to take examples from each other, most likely, the atmosphere in the company’s teams is quite tense and copies the style of the former board of directors. Therefore, there is a need for an information campaign on non-discrimination, which will improve the quality of communication between people and help them adopt new values. It is crucial that new communication practices are not imposed by force, but are implemented carefully through leaders’ example. Along with the information campaign, employees’ working conditions and motivation system could be revised.

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Equity in resource allocation should be restored as well. Previously, the resources were allocated not by professional merit, but by following the principle of belonging to a particular class or clan, and this situation should be corrected. As a result, leaders will even have to fire some employees and hire new ones to implement changes. It is also likely that there will be a need for new positions in the HR department, as the company will need people who will implement the above changes.

Conclusion

Thus, a scenario, where the company is changing the board of directors to a more diverse one was discussed; the recommendations to enhance changes were provided. To summarize, diversity in the board of directors is a guarantee of a fair and unbiased attitude of employees to each other. It also encourages better treatment of people outside the company and more attentive adherence to social norms and needs. It is because leaders’ various backgrounds and life paths can become a sound basis for the development of comprehensive collective thinking. Besides, this will eliminate discrimination of any kind and unfair practices related to social domination and resource allocation. Moreover, diversity in the board of directors will help to increase the level of trust within the company and improve the reactions of employees to each other.

References

ten Have, S., Rijsman, J., ten Have, & Westhof, W. J. (2018). The social psychology of change management: Theories and an evidence-based perspective on social and organizational beings. Routledge.

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BusinessEssay. 2022. "Board of Directors Diversity: Scenario Analysis." January 15, 2022. https://business-essay.com/board-of-directors-diversity-scenario-analysis/.

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