Paul S. Williams is a partner in the Chicago office of Major, Lindsey & Africa, the nation’s leading executive legal search firm, andis a member of the board of directors for three public companies: Bob Evans Farms, Compass Minerals, and Essendant. He recently was named president of the NACD Chicago Chapter, and has served as the lead independent director of State Auto Financial Corp. The NACD team recently sat down with Williams to discuss his insights on board diversity and to ask him how to make the most of the 2017 Global Board Leaders’ Summit.
NACD: You are a fierce advocate for greater diversity in the boardroom. Could you tell us why diversity at the highest level of a company is so important?
Williams: As a director, I feel a sense of obligation to make sure that I am helping to pave the way for diversity on boards. Unfortunately, there have not been many people of color that have served on public company boards. I think when you step back and think of the credibility of these boards—the credibility of corporate boards with the rest of the business world and the rest of society—it’s incumbent upon us to demonstrate that diversity within companies should start with the board.
When I say that I am a staunch advocate of diversity, I don’t want to limit it to ethnic diversity. I feel strongly about gender diversity, as well as diversity of ethnicity and sexual orientation. I truly believe these boards need to be diverse in all aspects.
Boards also need to be diverse experientially. Directors can’t all be people with similar backgrounds and ways of looking at critical business issues. It’s important that the discussions in our respective boardrooms include truly diverse views.
NACD: What kind of impact do you think a diverse board has on company culture?
Williams: I think it has a tremendous impact. When a management team sees a diverse board talking the talk and walking the walk, it sends a message that the board has taken to heart the importance of diversity. As a board, we don’t want to be hypocritical. Boards without diversity undermine the management team’s ability to bring about change.
A diverse board definitely impacts corporate culture in a number of ways, starting with the commitment to diversity within the company. There’s a sense of appreciation for people who bring different perspectives. It sets a tone of progressiveness and the mandate of being open to different ideas.
Diversity as a concept is somewhat intangible. Compared with financial results, it’s harder to measure. Yet I believe a company can’t have impressive financial results without an underlying culture that is productive and effective.
How can directors learn more about the importance of diversity?
Last year I attended NACD’s Global Board Leaders’ Summit. It was uplifting to be able to go to Summit and meet a number of other diverse directors. I knew that I would be assuming leadership of the NACD Chicago Chapter and thought it would be great to meet other chapter leaders. I had heard rave reviews about the programs and I wasn’t disappointed.
The sheer number of attendees at Summit is impressive. There is such a diversity of experience and expertise at Summit. It gave me an opportunity to meet people from around the country to network with and discuss the challenges boards are facing in terms of board diversity and other challenges.
What advice would give to someone attending Summit for the first time?
Get out of your comfort zone and meet new people. It can be tempting for people who are more introverted to stay with the people they know. Sit at a table with folks you have never met, or who are from a different part of the country, or who sit on boards that are in different industries.
Have a game plan in advance, especially in terms of programs you plan to attend. It’s important to know which programs you want to focus on.
Most importantly, have fun! Really allow yourself to enjoy the things that come up in the spur of the moment, whether it’s talking to someone that you didn’t anticipate meeting, or going up to one of the speakers after a program and asking a follow-up question.
Click here to learn more about diversity-specific programming offered at the 2017 Global Board Leaders’ Summit.
The demographic and expertise-based makeup of public company boards has come under increasing scrutiny from investors as numerous studies continue to correlate elements of diversity with improved company performance.
The National Association of Corporate Directors’ Report of the NACD 2016 Blue Ribbon Commission on Building the Strategic-Asset Board emphasized the essential task of assembling and assessing a board best fit to tackle the challenges of the constantly-changing business environment. At its core, the successful strategic-asset board is a mix of directors with diverse backgrounds who are fit to the purpose of complex oversight. And the demand for diversity is not just about market-based performance—the evidence also shows that diverse boards engage in more robust debates, make decisions that are sounder than they would be otherwise, better understand their customers, and attract higher-performing employees.
For smaller public companies in the U.S., underperformance in board diversity is even more pronounced. In November 2016, Equilar released a report revealing that small public companies lag behind S&P 500 companies when it comes to board diversity. For example, 23.3 percent of Russell 3000 companies in 2016 had all-male boards versus 1.4 percent of S&P 500 boards.
But does this study tell the whole story? Gender diversity on boards understandably receives the most attention because it’s one of the easiest metrics to quantify. However, measuring progress with the broad brush stroke of S&P 500 (or even Russell 3000) gender statistics does a disservice to the full story of diversity on a company’s board. Diversity in the boardroom best serves a corporation when it’s addressed in a holistic manner, taking into account age, experience, race, and skill sets along with gender. In fact, when the U.S. Securities and Exchange Commission (SEC) adopted diversity disclosure rules in 2009, it allowed companies to provide their own definition of diversity.
At Nasdaq, we’ve taken a detailed look at the board composition of listed companies, including those too small to be included in much-publicized diversity studies. In doing so, we found promising signs of progress. For example, 14 Nasdaq companies have reached or exceeded gender parity in the boardroom versus five companies in the S&P 500. In 2016, 75 women were elected to a Nasdaq-listed company board for the first time. Many of these women came from outside the C-suite, recruited from non-corporate professional disciplines such as university administration, government, medicine, public education, and journalism.
We also discovered that many Nasdaq companies have compelling stories to tell with respect to board composition and their own diversity of age, gender, race, and skill sets. Unfortunately, their efforts go largely unnoticed for the simple reason that they aren’t sharing their story. Only a handful of companies highlight board composition in their proxies using charts and graphs to summarize their board profile metrics. Yet these metrics offer stakeholders valuable insights into the board’s ability to oversee and support management and its strategic plan.
At Nasdaq, we see ourselves not just as a public company, but also as a model for our nearly 3,000 listed issuers. One example of this is our 2016 Proxy Statement in which we enhanced board transparency through graphics and statistics on a variety of metrics. This data illustrates not only the gender diversity of our board, but also the diversity of skills and experience present. We believe this information is valuable for shareholders and the market and we will continue to share it.
As the head of the SEC, an agency focused on disclosure to investors, Chair Mary Jo White observed in a recent speech that “A growing number of company proxy statements have recently begun to voluntarily provide an analysis of data, accompanied by pie charts and bar graphs, to describe the state of the board’s gender, race and ethnic diversity composition, sometimes in addition to other categories… This more specific information is clearly more useful to investors.” In fact, we found a number of Nasdaq-listed companies (both small and large) that shared diversity metrics around board composition in their proxy statements in 2016. These companies include:
As companies continue to prepare for the upcoming proxy season, we encourage your board to consider simple report enhancements that increase the transparency around the diversity of boards, including disclosing not only a board member’s gender and age, but also their ethnicity, skills, and experience. Until such transparency of board composition metrics becomes the norm, the full story of corporate board diversity and the valuable insights it provides to investors will remain obscured.
Lisa Roberts is a vice president in Nasdaq’s Legal and Regulatory Group, where she co-leads the Listing Qualifications department and advises on governance matters for our issuer community. She also manages our Governance Clearinghouse website, which includes original articles on a variety of topics relevant to public companies, such as market structure, corporate sustainability, boardroom diversity, legislative advocacy, cybersecurity, and risk management. This site is available to all public companies and their advisors free of charge.
This communication and the content found by following any link herein are being provided to you by Nasdaq, Inc. for informational purposes only. The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular situation and nothing contained herein should be construed as legal advice.
Identifying what expertise is needed on the board and orchestrating different—if not conflicting—points of view into constructive conversation can be a challenge. During a session at the second annual NACD Diversity Symposium on the opening day of the Global Board Leaders’ Summit in Washington, DC, panelists James Lam, director and chair of the risk oversight committee at E-Trade Financial Corp. (E*TRADE); Myrna Soto, director of Spirit Airlines and CMS Energy Corp.; and Charlotte Whitmore, vice chair and chief, brand strategies, of Analytics Pros., discussed how boardroom talent and a robust mix of perspectives are critical to ensuring a company’s success.
Conversation centered around two themes:
1. Striking a Balance. When considering the future needs of the company, Lam recommended that directors think about their business and its risk profile and then consider the following questions: “What are the key megatrends that will impact the business?” and “What director skill sets will be needed to mitigate this potential impact?”
Considering the continuously growing list of threats and disruptors facing businesses—such as cybersecurity, globalism, and climate change—some boards debate the need to focus on recruiting subject-matter experts to help them oversee these risks. But panelists agreed that new perspectives should replace long-standing expertise.
“Seasoned directors can be a voice of reason,” Soto said. “New executives can be what you need to push the strategy. When you have that diversity of thought, you really challenge the strategy, but it comes down to the nominating committee and how it thinks about what the next director is going to bring to the table.”
Drawing on her own experience, Whitmore concurred. Whitmore is cofounder of the data analytics start-up, Analytics Pros, and knows what it’s like to both recruit directors whose business experiences are different from her own and to be recruited to a board because of her particular expertise. At her own company, Whitmore said she has learned from more seasoned directors that taking actions to grow the company too quickly might do more harm than good. “They bring a sensibility to corporate culture that’s not just about driving results,” she said. In her role as a director, she said her older colleagues often look to her data-analytics savvy to discover new ways to support the organization.
2. Facilitating Dialogue. Having diverse perspectives around the board table does the company no good unless they are heard. Effective director onboarding is vital to acquainting a new director with the company and establishing both the board’s expectations of the new recruit and what that director expects of fellow board members and management. A director’s ability to successfully contribute to the conversation is contingent on the conditions on which they were onboarded. Soto said that she turned down several directorships based on what she learned about the companies’ governance structures. Lam recalled having his own agenda during his onboarding at E*TRADE, ensuring, for example, that he was able to meet with the risk committee and senior management.
In addition, the lead director plays the very important role of ensuring that all directors are heard. When new directors are called upon to join the board of a company in crisis or during a transition—such as a CEO succession—the lead director can be instrumental in managing and balancing the perspectives and experiences represented around the table and getting the full board to a point where it feels comfortable not only in making major decisions, but also in communicating those decisions to stakeholders outside of the boardroom.