A Strategic Approach To Board Composition And Diversity

diversityDespite years of research and data that clearly demonstrate that diverse organizations – and boards of directors – outperform homogenous groups, corporate and nonprofit boards have barely moved the needle on diversification.

Last February, BlackRock, Inc, the world’s largest asset manager, sent letters to companies on the Russell 1000 Index with fewer than two women on their boards asking them to justify this lack of gender diversity and to report on efforts to increase diversity. “Irrespective of a company’s industry, location or size, we believe that a lack of diversity on the board undermines its ability to make effective strategic decisions,” BlackRock said in the letter signed by Michelle Edkins, global head of investment stewardship at the New York-based asset manager.

Almost a year later, Edkins says she is disappointed by the response from these companies. “On board diversity, frankly some of the answers we got were from the 1880s,” Edkins said at an investor conference in November. Responses from companies included: “There aren’t any qualified women,” “We don’t need a woman director” and “We’re not a consumer-facing company.”

Women currently occupy only 18% of board seats at the biggest companies, and only 10% of lead independent directors and 4% of board chairs are women. The stats for racial diversity are even more grim, with some studies showing that 15% of board seats at the top 200 S&P 500 companies belong to racial minorities.

The nonprofit sector mirrors this lack of diversity in leadership at the organizational and board level. The percentage of people of color in nonprofit board seats has remained under 20 percent for the last 15 years, and doesn’t show any signs of changing despite growing awareness of the strategic, financial, and social benefits of diversity.

So why are corporate and nonprofit boards so slow to change? In both sectors there is a stark gap between understanding and action. A 2017 PwC survey of nearly 900 directors found that a majority of them – 73% – recognize that diversity is beneficial. Of that segment, 94% said gender and racial diversity brings unique perspectives to the boardroom, 82% agreed that it enhances board performance, and 59% tied it to better company performance. Clearly, the majority of boards understand the value of diversity.

A survey of nonprofit boards by executive search firm Koya Leadership Partners found that 96 percent of survey respondents believe that diversifying their boards is a key objective, but only 24 percent have taken any action toward increasing diversity.

Clearly, directors in both the corporate and nonprofit sector understand the value of diversity. But the metrics show they are doing very little to walk the talk when it comes to actually diversifying their boards.

The Koya Leadership Partners study shows that many directors in the nonprofit sector simply don’t know what actions they should take. They lack the knowledge, skills, resources, and commitment to change required to turn awareness into action.

The highest impact change that any board, of any size, in any sector or location, can immediately put into place is to change the way it recruits members. Most boards recruit through existing relationships and by word of mouth, which almost always ensures that new members will be similar in gender, race, and socioeconomic status to current directors.

These informal recruitment processes will do very little to increase gender, racial, or any other desired form of diversity, and should be replaced by strategic recruiting plans that begin with an evaluation of the current board, identify missing skills, characteristics, and other qualities, and implement proactive, measurable steps for going beyond the “usual suspects” to identify and assess potential board members who bring both high quality and a diverse perspective and background.

Board chairs and CEOs have a particularly important role to play when it comes to driving change. Educating other directors about why diversity matters, ensuring that diversity is a key strategic priority for the board and company as a whole, and holding the board accountable for diversity efforts are all critical steps these leaders can and should play to ensure that boards of directors are unlocking the full potential of the organizations they govern.