Publicly listed companies are more critically evaluating their approach to diversity and inclusion, including in their board composition. These issues may become of heightened importance with the increased attention on environmental, social, and governance criteria and may soon be a required disclosure, given the December 2020 initial proposal the Nasdaq Stock Market LLC (“Nasdaq”) filed with the U.S. Securities and Exchange Commission (“SEC”) “to advance board diversity and enhance transparency of diversity statistics” through a requirement that companies “have, or explain why it does not have, at least two members of its board of directors who are Diverse.” In February, Nasdaq modified its proposal, including by allowing companies with boards of five or fewer directors to meet the objective through one diverse director and by providing companies with additional time to meet the objective under certain circumstances. In light of the amended proposal, in March, the SEC extended the comment and rebuttal period, likely pushing its decision into the summer.
Whether mandated or not, companies and organizations of all sizes are considering the diversity of their leadership, albeit sometimes in the face of resistance. Earlier this year, the Japanese Olympic Committee’s proposal to increase the participation of women as committee members garnered news when the now-former president of the Tokyo Olympic Organizing Committee commented that “board of directors meetings with many women take a lot of time.” A week after his resignation, the new president (succinctly) affirmed her focus on “further[ing] the cause of gender equality” through the Olympic Games and promised to “set forth a system for implementation and begin delivering results.”
For companies seeking to increase diversity in their board rooms and among their executives, the proposed Nasdaq listing requirement provides an opportunity. How can these companies increase diversity and ensure that the change is meaningful? Below are five practical tips for organizations seeking to move forward in their diversity and inclusion initiatives among senior leaders.
1. Recruitment is key.
Boards should be strategic in identifying candidates and defining the experience they value in a potential director. As noted in Nasdaq’s proposal, a recruiting process where directors look “within their own social networks for candidates with previous C-suite experience,” risks perpetuating underrepresentation by amplifying the characteristics already present on their boards. Rather, boards should map out existing and desired competencies (as discussed in item 5 below) and think creatively about where to find them. For example, if seeking prior board experience (itself not a necessary prerequisite for successful board membership), think about the boards of non-profit organizations or companies that have a mission more likely to include diverse members and that aligns with the culture the board is trying to embed. This last point is important: what culture is the board trying to promote both for itself and its organization? Seek out candidates who promote the desired culture, even if they are not in the C-suite. These qualifications may be of equal or greater importance as compared to prior experience. Existing recruiting resources can help. To name just two: the New York Stock Exchange Board Advisory Council introduces diverse candidates to companies listed on that exchange and Nasdaq has proposed a partnership with Equilar to do the same.
2. Meaningfully teach new board members about your business, concerns and objectives.
Board member onboarding provides a critical opportunity to communicate, at an early stage, board and company commitment to diversity, as well as expectations of how each director will contribute to board and company diversity initiatives. This messaging can start from the interview stage.
• Onboarding meetings should include open and transparent discussions about the board’s and the company’s strengths and the opportunities regarding diversity and inclusion. Board Chairs should solicit input from each new board member on their observations on these efforts to promote diversity and inclusion. That dialogue should continue periodically.
• New director onboarding should include board-specific training on topics related to diversity and inclusion. Boards should arrange for trainings as onboardings take place rather than delaying until annual board member trainings.
• Importantly, these efforts should be made with all new board members. To be effective, diversity and inclusion efforts must extend to the entire board and not rest only on the shoulders of diverse individuals.
These efforts provide only a baseline of the activities, but they are critical to communicate to new directors that the board’s commitment to diversity is sincere and goes beyond adding representation to its ranks. More broadly, these efforts will provide board members an opening to express their views and ideas on these important topics.
3. Encourage all voices in the board room.
A few relatively simple changes to how board meetings are run can go a long way in helping an organization realize the full benefit of its diverse board.
• Ensure that meetings are long enough for robust discussion. Board members are busy but active participation in meetings is their responsibility. While it is important that meetings be respectful of attendees’ time, sessions should be scheduled to allow for meaningful discussion that will invite wide participation by all members.
• Solicit opinions from all board members. A board may be diverse in many ways, including, for example, by having both extroverts and introverts. To ensure that everyone’s opinions are heard, the Chair and individual board members should be cognizant of who has spoken and make efforts to draw out quieter colleagues by specifically inviting their views.
• Amplify diverse voices. Board members have the ability to meaningfully draw attention to the voices within their ranks. Members should echo other’s voices – with attribution. No need to agree with the opinion, but giving it airtime helps.
4. Include all board members in informal discussions.
Key decisions are memorialized at board meetings, but important discussions often occur informally – in one-on-one meetings, over text, in phone calls. In order for decisions to reflect the opinions of the full board, directors must be heard throughout the governance process, including in interactions and conversations occurring outside of the board room. Studies have found that a sense of belonging is a critical ingredient to an organization’s success: when individuals feel like they belong, they perform better and companies reap substantial benefits. A sense of belonging has been linked to a 56% increase in job performance and 50% drop in turnover risk. (https://hbr.org/2019/12/the-value-of-belonging-at-work) What better way to make a fellow board member feel like he or she belongs, than to actually act like they do, including them outside of the board room as well as inside?
5. Be accountable through governance.
To be effective, a board’s diversity and inclusion objectives must be specific, measurable, and defined to permit the board to hold itself accountable for delivering against those objectives. Boards should memorialize their commitment to diversity and inclusion in the board charter and other governance documents. Those documents should be discussed and reviewed periodically to ensure their continued relevance and responsiveness to the board’s and the company’s changing profile.
To ensure that the board’s commitment extends beyond paper, the board should look to its charter and objectives as it builds out and reviews its board competency matrix to ensure that diversity and a commitment to diversity factor among the key competencies of the board. These documents should also inform and factor into the board’s annual evaluation process. This evaluation should include questions on the board’s commitment to diversity and inclusion, including specifically how the board and each director have demonstrated their collective and individual commitment to diversity and inclusion. These questions should be as detailed and probing as inquiries focused on the other areas of board performance. Of course, questions related to diversity and inclusion should also form part of one-on-one confidential evaluation interviews.