Initiatives to increase board diversity start at the top.
BoardReady, a Seattle-based non-profit, recently released a new report examining the correlation between board diversity and company revenue. The results were stunning. In short, companies with diverse boards tended to do better during this time of transition. The data, covering the years 2018 to 2020, showed that better company performance correlated roughly with increased levels of gender, age, and racial diversity in the composition of boards of directors. And in another report by McKinsey and Company, companies with more diverse executive teams were also top financial performers.
But despite this compelling evidence, companies have made little progress in board diversity over the last several years. According to a recent analysis, under-represented ethnic and racial groups make up 40% of the U.S. population but just 12.5% of board directors. Many organizations blame the issue on a perceived “pipeline problem,” implying a lack of qualified candidates. But Deanna Oppenheimer, Founder of BoardReady, disagrees. According to Oppenheimer, “Of the clients that BoardReady has worked with, 100% have added a diverse person to their board. Highlighting that the challenge is not diversity, but a connection to the phenomenal pipeline of diverse leaders that already exists.”
Without a doubt, there are highly qualified candidates out there. So, what can companies do to increase board diversity? Let’s begin by examining these strategies.
Run a diversity audit
An excellent first step is to conduct a diversity audit to identify the composition of your organization. Compare the demographics of your workforce with the demographics of your board. Are they dramatically different? Can you identify gaps? If you do, it may be time to revisit your recruitment practices. Ultimately, the audit provides a view of your progress, as well as opportunities to improve.
Secure a commitment to board diversity
Securing commitment at the highest levels is essential. Diversity starts with the board and senior management, prioritizing specific efforts and getting the necessary resources. If it doesn’t already exist, develop a board diversity policy. Diversity policies can range from something simple to a lengthier document. As the organization evolves, you can adjust your approach as needed. Most importantly, use it to guide your diversification efforts and provide transparency moving forward.
Expand recruitment efforts
One assumption is that new directors must be part of the C-Suite. While this can be a valuable approach, broadening the search beyond the executive level would be beneficial. Create a task force to expand recruitment efforts. Cast a wider net by looking at MBA programs, executive leadership programs, local colleges and universities and professional associations. Also, consider using an executive search firm if your budget allows.
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Formalize succession plans
Boards often address succession planning when a director is close to retiring. And even at that point, they are not always transparent about what those plans are. Instead, boards should formalize succession plans in advance. And share those plans with all directors. This approach provides more opportunities to source in-demand diverse candidates.
Add a new seat to increase board diversity
One of the biggest hurdles to increasing board diversity is that most boards have very low turnover. According to one study, nearly half of the largest publicly-traded companies in the U.S. made no changes to the composition of their board of directors in the last 12 months. A simple way to address this is to add a new board seat without waiting for a director to step down or retire. In the long term, boards should consider addressing low turnover rates with policies that decrease director tenure and promote turnover.
Encourage transparency
Transparency and accountability go hand in hand. One way to encourage openness is to leverage a new Board Diversity Disclosure Benchmarking Tool by KPMG. The free tool allows board members, staff and other professionals to compare board diversity practices by sector and company size to analyze trends. “Diverse boards are more effective, and disclosure drives action,” said Susan Angele, senior advisor at the KPMG Board Leadership Center. “As stakeholder calls continue to grow for disclosure of board diversity as well as policies and practices, this tool will help measure progress and highlight gaps.”
Track and measure progress
To stay focused on your dedication to diversity, monitor your progress regularly. Identify key metrics and publicly disclose them using a diversity tracker. This method will show commitment and hold the team accountable. A tracking mechanism will also make it easier to identify areas of improvement.
Executives and board chairs recognize that a diverse set of backgrounds and perspectives is crucial to fostering innovation. And in the fight for global talent, diversity and inclusion policies are valuable recruiting and retention tools. So, while companies have made some progress, there is still more work to be done. Continuing to seek diverse candidates for board service is essential because that’s what the future requires. And after all, it’s good business.
