September 14, 2021
September 14, 2021
Boards that have strong governance tend to have an established onboarding process for new directors. Typically, that process involves providing the new director with documentation, financial statements, minutes of past meetings, and specific reports, in addition to having them meet the CEO and chief financial officer (CFO).
In many cases, new directors are recruited from a network of C-suite executives and other leaders already known to current board members. This means some onboarding processes may be informal and assume the new member has foundational industry and executive knowledge from having held a C-suite position and support from preexisting relationships with current board members.
But the onboarding process merits review in light of emerging trends related to the nomination of new board members. Shareholder activism is increasingly focused on governance and on the independence of directors (and the independence between them). This has led to important shifts in board composition, with new and independent directors appointed to boards in greater numbers over the past several years. There is also a significant focus from investors and stakeholders more generally on increasing board diversity in terms of gender, ethnicity, physical ability, and skill set.
A 2019 Institutional Shareholder Services report conducted in-depth research of over 19,000 directorships from 2,175 Russell 3000 companies to quantify changes in board composition. It identified two trends supporting the need to review and adjust the onboarding process for new directors:
What does this mean for onboarding processes? The onboarding package handed to a new director—and the conversations accompanying it—need to be adjusted to account for the board’s change in strategy and focus. Additionally, and perhaps more importantly, the board needs to look at its practices related to the inclusion of new members, especially when they are not drawn from the traditional network pool.
All existing board practices, including onboarding processes, contain inherent bias: “a bias which is due to the nature of the situation and cannot, for example, be removed by increasing the sample size.” If half of a board’s members are financial executives, then that board has an inherent bias toward recognizing financial risks and opportunities and toward thinking of issues in terms of financial impact. Inherent bias can also exist as a result of other board traits: age, industry experience, gender, ethnicity, physical ability, and more.
So, how can a board make the boardroom and its onboarding process more complete and inherently more welcoming to new members who have diverse backgrounds, skills, physical abilities, and life situations?
1. Unpack bias. Boards must first attempt to unpack their inherent biases as a whole before tackling changes to the onboarding process. Boards that skip this step do so either because they are adding diversity solely in response to regulation or stakeholder calls to action, or because they believe there is no inherent bias in their organizations.
By definition, and often without malice or forethought, inherent bias is not immediately visible to those within any organization. However, there is reputational risk associated with both tokenism and believing one’s organization to be free of inherent bias. It is essential that the board internally and externally clarifies why diversity is important to them, what type of diversity is needed to complement the existing board, and what value can be generated for the organization before onboarding a candidate with diversity of background, skills, or abilities. Hearing each individual board member’s opinions is important. Having an impartial, experienced third party facilitate this process and conduct awareness training may be highly beneficial.
2. Review the onboarding process. Once the board has this open window into its inherent bias, it can review the current onboarding process, following the steps below, to ensure it is truly inclusive.
3. Provide a warm welcome. Last but not least, welcoming new members is critical to their inclusion on the board. As a director myself, I can attest to how intimidating it can be to join a new board under the usual circumstances—and it is doubly intimidating following a diversity initiative of any kind, especially if the rest of the board has been working together for a while or has personal connections.
Existing board members must get to know new members on a personal level, hear their suggestions, and incorporate them into the board’s work, and be prepared to address any discomfort that may arise—either from new or existing directors—from having a newly diverse perspective in board debates.
The chair, in particular, sets the tone for boardroom dynamics. They must acknowledge and communicate why—specifically—new board members have been selected. The chair must also directly communicate organization-wide the board’s intent to be truly inclusive to new members for them to feel safe raising any issues or concerns. This intent to include diverse perspectives and to provide a safe space for dialogue will further expand the board’s collective knowledge and understanding of its own inherent biases. From the new members’ perspective, knowing that their diverse professional and lived experiences are valued around the boardroom table will go a long way in ensuring authentic inclusion.
Lesley Antoun’s consulting firm offers advisory services and strategic planning expertise to small, privately held companies; large, publicly traded corporations; crown corporations; and universities. She is also an experienced corporate director, serving on two boards.
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