Select Your Board With Intention To Reach True Diversification

Five tips for getting real diversity in your boardroom before the absence of it begins to affect your bottom line.

Look around your company’s boardroom. Do you see real diversity? Does your board truly reflect the unique viewpoints of your employees, buyers, investors, and other important stakeholders? While we are making progress, there is significant work to be done when it comes to increasing boardroom diversity. According to Spencer Stuart’s 2020 Board Index, under one of four new S&P 500 directors (22%) are minorities. Minority men represent 12% of the new directors, and minority women, 10%.

Coming off a year of protests, social unrest, a global pandemic that widened the inequity gap, boards are hyper focused on the question of whether they’re doing enough to drive progress and accountability on diversity, equity and inclusion in their organizations. Reflecting inward is a critical step in this process – and the boardroom is no different. While some mandates have been implemented to regulate equity, the U.S. is far behind other countries in diverse representation on boards.

Research from KPMG’s Board Leadership Center has found that institutional investors, proxy advisors, and other stakeholders are concerned about a lack of diversity, low director turnover, and whether the board has the right skill sets to guide the company and its strategy into the future. In fact, some institutional investors have said that they will withhold or vote against directors due to a lack of gender and racial diversity on a board.

Cultural influences on purchasing patterns, employment decisions, and team dynamics may be missed when boards do not include directors from the racial or ethnic groups that are important to their long-term strategy and sustainability.

Today, an effective board needs to have a composition of people whose diverse experiences bring unique viewpoints to the table. Viewpoints that align with and represent the diversity of a company’s stakeholders, backgrounds and skillsets to better anticipate demands, expectations of stakeholders in the future, and to improve board decision-making.

Cognitive diversity is also essential to challenging the company’s strategic assumptions and more effectively thinking about the future. As one lead director we spoke to recently noted, “Companies and boards are at an inflection point. The need to reimagine, rethink, and reset is probably a once-in-a-generation opportunity.”[1] That requires the ability to think differently.

So, how do you get your boardroom there before your bottom line is affected? There are a few things that stand out when boards get it right:

1. Nominating committees must be intentional about aligning the talent in the boardroom not only with company strategy but with the demographic of its stakeholders. Identify the unique perspectives, capabilities and skills, and think through the most beneficial complement of skillsets and backgrounds to help lead the company into the future.

2. Clearly outline how you make and drive decisions as a board and how people go about processing and digesting information. Are they compatible? They need to be to ensure your board is asking the right questions.

3. Be intentional about the selection process. Expand your search footprint when you seek board candidates– you can’t search in the same places and expect different outcomes.

4. Tap into organizations that have ready talent that’s been developed to strengthen and drive the diversity required to operate as a high-performing and effective board.

5. Tap into search firms that have connections with diverse corporate board organizations like Women’s Corporate Directors, Quorum or the Latino Corporate Directors Association. There are a number of databases out there with diverse directors who are ready, willing and able to serve and just need the opportunity.

Board diversity is and will continue to be a key area of focus in 2021 and beyond, as many boards will see we are at an inflection point for corporate governance, and the demands from institutional investors and key stakeholders will push companies toward making the changes necessary to position the board strategically for the future, drive progress on inclusion and ultimately drive growth.

An intentional process to identify the right people who will bring diverse experiences and skills to the boardroom and throughout an organization will help drive financial performance and cultivate and reinforce a culture that can successfully execute its strategy.

 

[1][1] “Resilience: Leading for the Long term”, KPMG Board Leadership Center, July 2021