Much has been written about the business benefits of having greater diversity at the board level, whether in terms of gender, ethnicity, or national culture. Board chairs, nominating committees, and CEOs we work with are all familiar with the strategic imperative to compose the board so that it more accurately reflects today’s talent and market realities. Against the backdrop of a growing body of evidence that points to balanced boards delivering enhanced financial performance, board leaders are asking less about why diversity is important and more about the practical concerns of how to accomplish it.
Yet, despite this awareness and often the best intentions, increases in board diversity have been slow. According to Heidrick & Struggles’ just-released 10th annual US Board Monitor, 40 percent of new director appointments to Fortune 500 boards in 2018 were women, up from 18 percent a decade ago. However, the total share of seats held by women on these boards remains only 22.5 percent. Strides toward achieving ethnic and racial ratios that accurately reflect twenty-first century demographics are more disappointing. African American appointments held steady at their 2017 high of 11 percent; Hispanic appointments dropped from 6 percent in 2017 to a little over 4 percent in 2018; and Asian appointments rose from 6 percent to only 8 percent over the same period.
To jump-start progress and reap the full value of balanced board membership, we suggest that the next step is for boards to hold up a mirror to themselves. That self-examination process should start with a wide-ranging and ongoing discussion about board composition, practices, and recruiting criteria. The goal is to surface traditional assumptions and determine whether they remain constructive, or whether they are hindering the board’s ability to recruit directors with the new profiles and skills required to support the board’s work.
There are three questions we recommend that boards include in their discussions. Reaching consensus on these crucial factors will enable boards to find and retain a broader range of board members and, not coincidentally, support their longer-term board succession planning process.
1. Who can be a director?
It may be time to challenge preconceived notions about suitable profiles for new directors, in terms of CEO experience, prior board experience, age, and overall business experience. Do you really want to exclusively recruit CEOs, which will severely limit diversity? Many boards have already discovered that adding essential functional expertise, such as in cybersecurity and Internet-based business, has necessitated the recruitment of younger directors whose professional profiles are far different from traditional candidates. To determine what your board requires in a new director, it’s best to examine the strategy to see what new product, business, or market plans will need additional board knowledge and support.
2.What’s the right pace of change?
There’s a critical balance to maintain between preserving board experience and institutional memory and keeping membership from stagnating. Directors should test current board policies regarding retirement age and term limits. Are they serving their intended purpose or primarily serving as a barrier to incorporating diversity and needed new-director experience? Is board turnover keeping pace with the company’s changing strategic needs? Is there enough fresh blood joining the board to serve as a complement to veteran directors?
3. Is our boardroom culture inclusive?
A recruitment is only successful if board service is viewed as a rewarding experience for both the board and the new director. Take stock of the subtle messages you are sending about your boardroom culture, including about current board composition and spokespeople. Be honest: are you currently a board where women and people from other underrepresented groups, whose perspectives you need, can contribute as peers and have their views heard and valued? The most sought-after candidates will have multiple board opportunities to choose from and will do their homework on your board.
Once boards reassess themselves in these key areas, they will be in a favorable position. Recruiting diverse directors is not a supply issue, in our experience. Highly capable women and diverse candidates with the skills boards need exist, although seeing them may require a different lens. The onus is squarely on the board to hold itself accountable for demonstrating tangible progress in building balance among its team members and reaping the business benefits greater diversity can deliver.
This article was originally published in the July/August 2019 issue of NACD Directorship magazine.