Ford corporate director Kimberly Casiano, a founding member of the Latino Corporate Directors Association and a director on the boards of Mutual of America and Mead Johnson Nutrition, recently gave her perspective on “the business case for diversity” in an interview with CNBC. In the current political climate, advocacy of diversity, equity and inclusion has been characterized as “wokeness.” This negative characterization may result in discussions about diversity in boardrooms across the country.
Many corporate boards continue to resist diversifying according to gender and/or racial ethnicity. The resistance to diversity may even extend beyond the boardroom.
During the interview, Casiano states, “The biggest obstacle to diversity is lack of true buy-in – as I call it, ‘true believers.’” Corporate board members may want to consider asking themselves, “How many “true believers” in diversity do we have on our board?” Director may also want to ask, “Can our company afford to ignore the potential benefits of incorporating diversity into our business model for future growth?”
Corporate directors might want to consider the views Casiano expressed in the CNBC interview while they are having discussions about the business case for diversity. Here edited comments are as follows:
“Studies proving the business case for women on boards could not have happened if women had not gotten to a level of critical mass. Gender critical mass is usually defined as having at least three women on a board. McKinsey, Bank of America, Morgan Stanley, Catalyst, Deloitte, to name a few, have studied at length U.S. companies with three or more women directors and have demonstrated clear results that these companies outperform their peers in above-average profitability, less volatility, higher return on equity, higher earnings per share as compared to companies with no critical mass of women. Mixed gender boards have fewer instances of fraud, corruption, bribery, and shareholder battles. They also have more effective risk management practices when investing in research and development.
So, just as a critical mass of women on a board — not just one or two women — was essential to studying the business case for women on boards, so too a critical mass of ethnic/racial diversity on boards is essential before credible research can be done to support the business case for diversity. Unfortunately, there are relatively few public company boards that have a critical mass of ethnically/racially diverse board members.
We are beginning to see the release of research by prominent entities analyzing the business case for ethnic/racial diversity. Interestingly, some of these studies have looked at gender diversity alone and then gender diversity combined with ethnic diversity. A McKinsey study, for example, showed that companies with gender diversity on their executive teams were 21% more likely to experience above average profitability. Companies with both gender and ethnic diversity on their executive teams are 33% more likely to outperform their peers.
These studies, combined with evolving personal experiences with diversity and bias, will hopefully accelerate and convince decision-makers and influencers to evolve from a mind-set of ‘feel-good tokenism’ into a mindset that diversity makes good business sense.”
The McKinsey study statistics that Casiano sites suggest that companies that do not consider diversifying their executive teams may be denying themselves and their shareholders some level of profitability. Casiano also makes the point that credible research suggests mixed-gender boards “experience fewer instances of fraud, corruption, bribery and shareholder battles.” Since the board is responsible for increasing shareholder value and protecting the company from misconduct and other unnecessary risks; and since there is plenty of data suggesting that diversity can help in both these areas; why are there not more “true believers” in diversity on corporate boards? Perhaps diversity can be part of the solution to problems corporate boards have been experiencing in recent years.