If I mentioned return on investment, it’s a fair bet that your thoughts would initially turn to plant and machinery, developing back-office IT systems or expansion through acquisition. You may even think about the costs associated with training, helping your people to develop skills in order that they can better serve the needs of the organisation.
And those answers would all be perfectly reasonable. After all, understanding where you should make investments in the business in order to generate the greatest returns is ‘bread-and-butter work’ for leadership teams. Quite simply are we prepared to spend £x to receive £y return?
But there are many other areas of an organisation in which a relatively small amount of investment can reap measurable rewards. Moreover, investing in business success needn’t necessarily require a monetary payment; sometimes the expenditure of time or even ensuring you set an example may be all that’s required. Investing in strong corporate governance is a perfect example of this.
It’s all too easy to think of corporate boards solely in the terms of creating vision and strategy or drawing up the annual accounts. But the way in which corporate boards are structured and the way in which corporate board members conduct themselves can have a huge impact on the overall profitability of the organisation.
Investing in board diversity
Take board diversity for example. When you look to appoint a new member to the boardroom team the selection process will cost the same regardless of who you appoint. However the impact on the organisation will vary depending on the candidate chosen. Much has been written over the last few years about the importance of boardroom diversity and I won’t go into all of the arguments here. Suffice it to say that numerous studies have concluded that diverse boardrooms can better reflect the customer base as well as increasing profitability by bringing a range of experiences and outlooks to boardroom decisions.
So by simply investing time in selecting board members who will add to diversity and strength of the team, the organisation can benefit in the long term. And this brings us to another important lesson when we talk about return on investment. When we consider return we should consider the wider implications of our investment.
For example, when we appoint a board member, we shouldn’t simply consider the immediate impact what they can bring to the organisation. Rather, we should consider the wider impact in terms of the people who they are likely to influence and what those people will then bring to the organisation. So when we increase diversity at board level we are sending a strong message out that the leadership pathway is open to everyone. And when people see that they have the chance of progression then they are more likely to step up and do more to enhance business success.
Return on investment shouldn’t therefore be seen as a simple x and y calculation. Rather, it should be considered in terms of the broader impact not only on business success but on people development and customer engagement. And it starts with good governance, with having a boardroom team which fully understands the potential which can be gained from making decisions which will have a lasting impact on the organisation.