The burden of proof has been met. Diverse boards make better decisions and lead to improved company performance. Yet despite the research, validation, prodding by institutional investors and state and city government as well as all types of social and nonprofit organizations, a startling 1805 companies out of 3192 (companies from the Fortune 1000 and Russell 3000) in a gender diversity index created by 2020 Women on Boards have zero or 1 women on their boards. That is a mere 56%. The case is similar for African Americans, Hispanics and Asians as well.
So what’s the problem? What is holding us back from the progress we desperately need? Here are 3 main explanations:
Legacy folklore portends that there are simply not enough qualified diverse candidates to fill board seats. We have heard this time and again. In 2013 when Twitter went public without one female on their board they said that they could not find women who had the technical skills necessary for this technology company. In fact, most of their board members had arts degrees.
Demand and the opportunity to diversify boards is also hampered by the fact that director tenures are often too long. The concept of board refreshment or even board turnover and succession planning are new. It wasn’t that long ago that board appointments were thought to be for a lifetime.
In spite of those that say otherwise, there is in fact an excellent supply of qualified and diverse board candidates. However we need to continue to make conscious efforts to fill the pipeline. This begins at the earliest ages with education and continues on through early career options and choices. Diverse employees (actually everyone) needs to think about their careers as limitless. They need to work towards positions at the highest levels and they must gain operating experience whenever and as often as possible.
Equally important is being able to advocate for oneself and gain exposure within the decision making circles that count in the boardroom. I always say that if you want to be a board director you must be able to be found. Basic isn’t it? But it can be challenging to execute.
3) The Matchmaking Process
Finally, and perhaps most importantly, is the process by which board directors are recruited. Recent research shows that 70% of the time a director role is filled by using a personal network or word of mouth. This means that most often finding a new director goes like this: the board, CEO and trusted advisors discuss whom they might know for a director opening at the company. Hopefully qualifications enter the discussion. Oftentimes the main qualification is that this new person is known by someone from within the company’s circle of trust. This process is neither objective nor strategic. It is reactive and will yield a result albeit not one that is optimal.
The rest of the time an executive search firm is engaged. Although this is an improvement over the hit-or-miss nature of the first approach, it is not foolproof. All search firms are not created equal and this is particularly true with respect to diversity. It is one thing to jump on the issue today as it is clearly a “hop topic”, but boards are where they are because of the mistakes of the past. Identifying, evaluating and recruiting a director is hard and important work if I do say so myself. It is always safer to put forward someone who has already done it somewhere else. But it is incumbent on us professionals to challenge ourselves and to look outside of the usual suspects. If boards are to improve their diversity we must be more diligent and accountable and proactive. Status quo is simply not good enough any more.
Thank you to Patricia Lenkov, Senior Managing Director at Teneo, for giving us permission to reproduce this article.