Board diversity is essential for business success. According to McKinsey, companies in the top 25% for gender or racial diversity are “more likely to have financial returns above their national industry medians.”
Despite its social and economic importance, board diversity is stalling. The vast majority of US directors are white and male.
This article takes a comprehensive look at board diversity, including an overview of the current situation and what your company can do about it.
An Overview of the Current Board Diversity Situation
As many of us might imagine, boards aren’t currently that representative. Here are some board diversity statistics to back that up:
- White individuals are around 60% of the US population but hold 84% of board seats at Fortune 500 companies.
- Black individuals make up around 12.5% of the US population but hold only 4.1% of Russell 3000 board seats. 37% of S&P 500 companies don’t have a single Black board member as of 2019.
- Latinos make up around 18.5% of the population but hold only 2.2% of Russell 3000 board seats.
- Only 20.9% of Fortune 5000 board seats are held by White women, with 5.7% being held by Black or Latina women.
Although women and minorities have made incredible strides towards representing a more equivalent share of board seats, much work has yet to be done.
In 2019, California became the first state to mandate board diversity. The law required that at least one board seat be held by a woman by the end of 2019, with three seats by the end of 2021. Those who don’t comply can be fined up to $300,000. Since then, Washington passed its own law, and other states are considering it.
In 2020, California passed another law to boost the representation of minorities. The law mandates that publicly traded companies must have at least one director from an “underrepresented community,” including minorities in race or sexual orientation.
Countries like Norway, Italy, and Finland have quotas requiring at least 33-50% of boards to be women directors.
5 Reasons Why Diversity Matters
There are many reasons why workplace diversity matters, all of which apply at the board of directors level. Here are some of the most significant.
Reason 1: Boosts Productivity
Diversity in the workplace is known for improving employee morale. When morale is high, so is workplace productivity, as people are more motivated to complete their tasks efficiently.
Reason 2: Improves Employee Engagement
When employees feel their coworkers will listen to them, their engagement goes up. Having a diverse set of people in a room means nobody feels alienated, and everyone’s more likely to speak up.
Employee engagement leads to increased profits, higher customer advocacy, and better revenue growth. One study found that companies in the top quartile for engagement scores had 2 times the annual net profit, 12% higher customer advocacy, and 2.5x boosted revenue growth than the bottom quartile. Imagine the benefit of improved engagement at the director level.
Reason 3: Increases Knowledge and Skills
Board diversity matters in large part due to the wide range of experiences and expertise that different board members bring.
Putting people of different ages, sexes, races, and more together leads to greater idea sharing and problem-solving.
Reason 4: Quicker Problem Solving
Boards will inevitably face problems throughout their tenure. An HBR study found that cognitively diverse teams are faster to solve complex and unfamiliar problems. This is almost certainly due to reason three above — diverse teams bring a wide range of perspectives and think more creatively.
Reason 5: Better Recruitment
Being open to a diverse board means your candidate pool expands widely.
Rather than only looking at ex-execs who are friends of current board members, expand your pool to include people of various experience levels, races, sexes, ages, and more. This way, you’re more likely to hire the best candidate for the job, not just the one that’s most convenient.
6 Ways to Boost Board Diversity
Step 1: Uncover Those Biases
Unfortunately, bias is a genuine phenomenon. In most cases, even the most accepting people harbor some form of bias.
First, you’ll need to understand the difference between conscious and unconscious bias.
- Conscious bias: a form of bias that the person is aware of and acts on intentionally.
- Unconscious bias: a form of bias that the person isn’t aware of and affects his/her actions without him/her knowing.
Conscious bias is easier to recognize and eliminate, but you’ll also want to tackle people’s unconscious biases to better improve board diversity.
Unconscious bias has many ramifications on diversity, including:
- Biased hiring practices, such as interviews or candidate sourcing
- Biased promotions
- Biased work assignments and chances for a person to prove themselves
- Biased behavior towards or about that person, such as comments on performance
Further, while bias predominantly manifests as racism or sexism, it can also involve age, education, socio-economic status, sexual orientation, nationality, or anything else.
Your first step towards improving board diversity means uncovering the biases of your current board members; you can even go as far as to find these biases in the rest of the company.
To begin addressing these beliefs:
- Foster an environment where it’s safe to voice notice of these biases. Ask questions and prompt dialogue where possible.
- Implement unconscious bias training. (These can often be all talk and no action. Do your research to make sure your training has a tangible impact.)
- Acknowledge people’s differences as a way to bring them up and unite your board.
- Take steps such as implementing mental health days and gender-neutral bathrooms. Actions speak louder than words.
Step 2: Advocate for a Board That Cares About Diversity
(Board) diversity is an increasingly hot topic, and many boards pledge themselves towards achieving it. However, a study by the Harvard Business Review found that only 34% and 47% of board members, respectively, found racial/ethnic and gender diversity to be “very important.”
It only takes one person to make a change. If you value actionable board diversity, take a stand. Usually, people are afraid to be the first person to voice an opinion, and once someone does, others join in.
Step 3: Reflect Diversity at All Levels
83.9% of Fortune 500 board directors are white. If you genuinely want to create board diversity, you’ll need to showcase diversity everywhere.
Nothing says superficial board diversity like unrepresentative employees and promotional materials.
On your journey for improved corporate board diversity, take the time to evaluate representation at all company levels. Think over your hiring, training, and promotional practices and consider how that impacts the layout of employees.
Further, make sure hiring and promotional materials, such as flyers, ads, and more, represent all ages, sexes, races, and anyone in between.
Doing this helps prove to potential diverse board members that this isn’t a statistics play — instead, your company truly cares about (board) diversity.
Time to make a change? Jennings Executive can help you find qualified and representative executives to take your company to the next level. Learn more today!
Step 4: Incentivise If You Must
Many times, boards are slow to change. If talk of board of directors diversity turns heads but doesn’t move needles, it’s time to incentivize action. One of the strongest ways to incentivize boards is to get executives and stakeholders on board (no pun intended).
If executives and stakeholders push for corporate board diversity, but action isn’t being taken, the board can suffer severe repercussions.
Step 5: Widen Your Candidate Pool
Many board seats were (and are) filled with an old boys club mentality. Executives that current board members know — typically fellow white men — end up snagging a board seat, and nobody looks much further than that.
Sometimes people believe that the reason behind a lack of board diversity is a shortage of qualified candidates. In reality, this isn’t the case. The preliminary step is acknowledging that diverse candidates exist, but it’s up to your board to consider them.
First, open your search to levels beyond that of the executive one. Many candidates at “lower” levels of the company can make wonderful directors.
Second, challenge the idea that the best board members are retired executives. Although their experience is great, current employees’ perspectives are more helpful in handling problems now. COVID is a strong example of how a current employee may be a wiser choice than a retired executive.
Step 6: Address Low Turnover
Board diversity is hampered by the phenomenon that is low turnover. One recent study found that almost half of the US’s largest public companies didn’t change the makeup of their board last year.
Many companies get locked into the idea that they must wait for one director to leave before appointing a new one; in reality, companies pushing hard for diversity now can add a new board seat, whether temporary or permanent, to make way for more representation.
More long-term, it’s critical for board diversity that directors balance tenure with turnover. While tenure allows for board members with unique and long-standing experience, turnover provides the benefit of recent (and relevant) experience. It’s essential to balance these two.
Board Diversity Means Showcasing Diversity Everywhere
Board directors are unlikely to accept a seat on your board if it’s clear they’re being hired as a statistic and not because you value their input. Board diversity requires diversity at all levels of the company, from entry-level to executives.
Jennings Executive can help you find qualified and representative executives for your company who believe in the value of diversity. We have over two decades of experience recruiting the best execs for the best companies. Learn more today!