January 12, 2021
January 12, 2021
Diversity in the boardroom encompasses all dimensions of the human experience, including education, background, gender, race, ethnicity, sexual orientation, geography, age, and specific areas of knowledge and expertise (such as digital savviness and mergers and acquisitions). Compelling research asserts that a diverse board leads to improved performance and innovation. For example, one study found that boards with greater gender diversity—particularly those with at least three women members—are more likely to prioritize innovation and technology.
Accordingly, the market is driving more attention to the topic of diversity, equity, and inclusion. Institutional investors, led by BlackRock and State Street Corp., are sounding the bell not only for gender diversity but for racial diversity, as well. Interestingly, in December, Nasdaq asked the US Securities and Exchange Commission to allow it to require listed companies to have at least two diverse directors, one who self-identifies as female and one who self-identifies as belonging to an underrepresented group—such as those who are LGBTQ+, Black, or Hispanic—and potentially delist companies who fail to disclose board diversity information. If other exchanges were to follow suit, they would align with the recent changes Institutional Shareholder Services made to its proxy voting recommendations.
Some boards have received the message. Since May 2020, 130 Black directors have been appointed to Russell 3000 corporate boards, an increase of 239 percent over the previous five months.
Is your board doing enough to improve diversity? Have the chair and CEO agreed on diversity goals, given the company’s strategy, markets, digital maturity, and circumstances? Is there a timeline for achieving those goals? Is progress toward adding diversity to the board and ensuring equity and inclusion monitored, and are you satisfied with that progress?
Whatever the answers to those questions, below are six suggestions for making demonstrable progress in improving diversity in the boardroom.
1. Dispel the myth of “fit;” it’s time to get uncomfortable. “Fit” has long been part of the lexicon when evaluating board candidates. A candidate may have the desired technology expertise, but will he or she be an appropriate “fit” on a board replete with current and former CEOs? Granted, board candidates must bring broader business acumen to the table than a specific domain of expertise. However, “fit” cannot be an excuse to sustain the status quo, nor should it be a cover for unconscious bias or other barriers to the participation of women and underrepresented minorities in the boardroom.
2. Expand your candidate horizons. It all starts with the board’s requirements when seeking candidates. If the screening criteria stipulate “a retired CEO who ran a large company at scale in the technology industry” or “a former CEO who managed through a crisis,” the available candidates will likely be mostly white males. However, with expanded search criteria, a broader pool of candidates will emerge.
Life experience, recent and relevant executive experience, skills, and a strong commitment to continuous learning should open the door to the boardroom for women and underrepresented groups. To find candidates who meet the board’s diversity objectives, take a close look at how new directors are sourced and qualified. Is there evidence of unconscious bias? If the search firm(s) and other channels used to identify candidates can’t come up with viable, diverse choices, should other avenues be explored?
Improving diversity may require thinking out of the box and disrupting the “tried and true” processes used in the past. Consider accessing talent pools developed by organizations such as Women Corporate Directors, Ascend/Pinnacle, the Registry of Black Corporate Directors, the Executive Leadership Council, or the Latino Corporate Directors Association.
3. Be an ally. We are all products of our experiences. In today’s era, directors can enrich their lives by increasing the diversity of their respective networks. For example, reaching out to underrepresented minorities on social media platforms, at conferences, at NACD chapter meetings, and in other forums can enhance one’s network. Engaging in broadening conversations in different forums to listen and learn can help increase directors’ sensitivity to diversity as they position themselves to reduce unconscious bias when screening and selecting candidates.
Make it a priority to include women and underrepresented groups when mentoring promising executives. Meeting the company’s top 20 to 25 leaders engages the board more actively in succession planning and evaluating executive bench strength and diversity—not to mention mentoring and sponsoring future women and minority directors.
4. Be courageous. Boards exemplify their true character in how they pursue diversity, equity, and inclusion goals. Don’t expect a single diverse board member to have a disproportionate impact, which could potentially set up this person for failure. Recognize the research that says meaningful change comes with three such members. In addition, intentionally create an environment in which different perspectives are welcomed and dialogue is encouraged. This is a tone that the board chair and committee chairs must own.
5. Champion the benefits of diversity. To foster innovation, the board needs members who have diverse experiences stemming from varied backgrounds and who, as a result, think about things differently and creatively when contributing to strategic and divergent conversations. Beyond the empirical evidence that shows diverse boards lead to better business performance, diverse boards also attract diversity to the organization itself—and everyone knows that the strategic war for talent continues to grow only more competitive.
When top talent looks at the composition of a company’s board and executive team, what do they see? Do they see a diverse group of leaders who they feel they could trust and who thus attract them to the company? If they don’t, is the lack of leadership diversity likely to hamstring the company’s efforts to acquire and retain the talent it needs? Similarly, is the composition of the board and executive team aligned with evolving markets?
An outward view of the changing demographics of the company’s current and prospective customers adds perspective. Does the diversity currently present in the boardroom and C-suite position the company to develop and gain access to market opportunities over the next three to five years? If not, is the organization acting with intention to address this gap? As the issue of overboarding—when directors serve on an excessive number of boards—increases, so too do opportunities for some boards to free up seats for women and underrepresented groups.
6. Achieve transparency with metrics and accountability. While this discussion is about the board, the relevance of diversity, equity, and inclusion within the organization itself, including among key decision-makers, cannot be overstated. Bringing diversity into the boardroom, the C-suite, or the customer-facing front lines begins with engagement, putting data in front of decision-makers, embracing that data, setting objectives, and adopting a plan tailored to the business’s unique circumstances and driven with intention by every business leader.
Dashboards should focus on the company’s progress toward recruiting a diverse workforce and fostering an inclusive and equitable workplace. Employee satisfaction with the company’s progress toward achieving diversity, equity, and inclusion objectives should also be tracked. Once objectives and expectations are set, results are best achieved through a transparent focus on measuring progress and linking compensation to performance. The board should further look to its own role in setting the tone as well as consider the example set by the C-suite and other leaders.
Diversity is much more than a check-the-box destination and even an evolving conversation or a journey. A commitment to diversity, equity, and inclusion is a continuous process that, when integrated into the nominating committee’s mind-set, criteria, and expectations for considering board candidates, is virtually inseparable from the director selection procedure itself.
That is why, at least for the short term, the director selection process should be disproportionately focused on advancing diversity in the boardroom. A company’s circumstances will change over time, but the need for diversity of lived experiences and therefore diversity of thought will not. Consequently, a holistic view of diversity from the nominating committee, full board, and CEO will help sustain the board’s effectiveness and organizational value in the years to come.
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