Fresh Strategies to Enhance Board Diversity

For the first time in July, all S&P 500 companies now have at least one woman on their board. While this speaks to the tremendous progress on the move toward enhanced diversity in the boardroom, the S&P 500 is only a very small representation of all the corporate boards, and there is still a huge hill to climb.

According to the 2018 BDO Board Survey, 19% of directors believe their board has room to grow in terms of diversity, and Corporate Board Member’s own 2019 What Directors Think survey found that 14% of directors had been approached by shareholders to discuss diversity in 2018. No surprise, then, that 78% of directors told us enhancing board diversity was on their agenda.

Yet many boards continue to struggle with the idea of using diversity as part of the criteria for filling an empty board seat, as it narrows the pool of candidates and the primary objective remains finding the best person for the job. This challenge is particularly tough for smaller boards, where finding specific skills is critical. To help, we spoke with Amy Rojik, director of the BDO Center for Corporate Governance and Financial Reporting, to discuss strategy.

Rethinking the Search

In a recent interview with Heidrick & Struggles’ vice chairman and co-managing partner of the global CEO & Board Practice, Bonnie Gwin, we mentioned the need for boards to look beyond the traditional CEO background to fill their next board seats with a more varied set of skills and experiences.

BDO’s Amy Rojik agrees that boards need to open themselves to non-traditional pools of candidates, but she also recommends rethinking the search process entirely.

“Looking at how they’re pulling together a slate of candidates is a good starting point for many companies because they can really get a better opportunity presented to them if they start looking at other vehicles,” she says, adding that boards that go outside of their usual patterns, whether that’s using the same search firm or the same recommendations from the existing board members, and start exploring new opportunities, talking to their advisors, looking across industries and seeing what makes sense put themselves in a better position to achieve greater diversity of thoughts and skills.

“It’s about knocking down the lack of forethought of some of the existing structures and really focusing in on what can be helpful in the boardroom,” she says.

Expanding the Board

Rojik says more and more boards today are considering expanding the board, at least in the near term, to bring on more diverse thought without disrupting what’s working or removing some of the experience that they might have otherwise had to sacrifice if they were replacing an existing member.

“Bringing onto and allowing new directors to become assimilated into a functioning board has been a strategy that some companies have found really beneficial,” she says. “You can then determine, down the road, whether you need to continue with that size board or let the natural succession take place and you’ve already assimilated some diverse thinking on the board.”

Of course, expanding the board should not be a reason for burying your head in the sand if a director isn’t performing as expected. Overboarding is often a reason for underperformance, and boards should take a look at the other obligations of their current directors and see if limiting the number of boards a director—particularly one with less-than-stellar performance—can serve on would open up opportunities to bring on new directors. Rojik, however, warns against setting arbitrary limits and, instead, looking carefully at the nature of the service.

“When you look at setting limits on the number of boards people serve on, you have to also look at the commitment—is this person sitting on six public company boards or are they sitting on maybe a couple of advisory boards in a not-for-profit environment? It really depends on the drain on that individual’s time and attention,” she says.

Conducting Gap Analyses

Another way to enhance diversity in the boardroom is to conduct regular skillset reviews. The key to the success with this process, according to Rojik, is to go beyond the “one and done” type of exercise to take a deep dive into the skills the board currently has and seeing how they align with the strategy and the growth goals of the company. The gap analysis produced as a result of this review will help drive a more accurate slate of candidates. Because in the end, although we often think of gender upon mention of diversity, the goal is making sure boards have the right people in place.

“Maybe that’s a female, maybe it’s a man of color, maybe it’s an age range or someone with a different experience or a different focus,” says Rojik. “You need to look at it collectively as an organization and align it to your strategy.”

Planning for the Future

There are a large number of very successful candidates in C-Suites across the country who could—and should—be groomed for that next level of corporate service. Most succession planning strategies center around the CEO and CFO, with little thought below that level. Rojik suggests looking at all levels of leadership within the organization and starting there while thinking about the long term and for what comes next.

She says there’s a popular belief that few women have board experience, and that’s the main challenge for boards looking to enhance their gender diversity ratio. “Women will never get that experience unless they’re given the opportunity. Companies need to be more proactive in that, and some are doing a very good job. That’s really powerful because there’s a lot of very influential and experienced women at all ranks who should be given the opportunity to provide input into the board. The women directors that I’m lucky enough to know all have had really significant backgrounds in business. They’ve all brought to the table vast experience across multiple industries, and that really benefits them and their organizations very well.”

But like most directors in our 2018 What Directors Think survey—fully two-thirds said they do not support California Senate Bill 826—Rojik doesn’t believe quotas are the answer either.

“While I think [the bill] definitely caused a reaction, I’m not sure that that’s the long-term answer,” she says. “It’s a sad state of affairs when you have to have regulation because of [a few stragglers]. We can’t wait for activists or investors or other folks to call us out on this. We need to be more proactive and doing this ourselves. We don’t need to be passing rules and regulations requiring a certain composition of a board. It’s going to be done naturally by corporate America.”

Improving Practices

There’s a lot of things boards can do that can be very valuable in achieving greater diversity. Rojik says that overall, we need to be looking at the issue much more broadly and encouraging better practices throughout corporate boardrooms.

“Do you still have investors on the board who are really looking just for the short-term exit strategy? Or do you actually have a proactive board that’s looking for the long-term success of the company? There’s a lot of different angles to diversity outside of it being a women’s issue.”

Directors agree on that. Diversity of thought, background, industry are all just as important as gender, age, racial or ethnic diversity. And in Rojik’s experience, if progress is being made it’s because the majority of directors are taking the issue seriously.

“Directors really want to do the right thing. They want to have folks in the boardroom that not only get along, but that can challenge traditional thinking and be innovative in what they’re trying to do for the long-term strategy of the company. That’s the starting point where you’re looking for diversity, and it just behooves the individuals within the corporations to really step beyond that and look at what the company truly needs for a successful strategy.”