Increasing diversity, equity, and inclusion (DEI) is a top priority for boards everywhere. But diversity efforts still come with hurdles. Our experts offer tips on how to overcome those obstacles on your board.
Imagine you’re a woman serving on a high-profile board.
You and your male colleagues take a quick break from a major discussion. When you get back, you’re informed that a decision was reached — in the men’s bathroom.
The above scenario is a true story that was shared by Marilyn Nagel, co-founder and Chief Advocacy Officer of RISEQUITY. Her company is dedicated to empowering employees, developing leaders, and transforming company cultures. It’s just one glaring example of a lack of diversity and inclusive practices in today’s boardrooms.
The good news? Increasing diversity, equity, and inclusion (DEI) is a top priority for boards everywhere. The challenge is that diversity efforts still come with hurdles. From overcoming stereotypes to disrupting traditional recruitment practices, boards face many obstacles when trying to achieve meaningful diversity.
During our ATLAS Leadership Series webinar, Marilyn and other experts broke down:
- What board diversity looks like today
- Why board diversity is a growing focus
- Common barriers to achieving board diversity
- 5 ways to improve board diversity at your organization
A Snapshot of Board Diversity Today
Diversity is desirable for today’s boards, but how diverse are they in reality? For public boards, which must comply with routine annual reporting, the answer is clear.
Lissa Broome, Head of the Director Diversity Initiative at UNC School of Law, shared the following statistics based on the 2022 spring proxy season:
- 22% of board members at S&P 500 companies are people of color
- 32% of board members at S&P 500 companies are women
In Lissa’s mind, this leaves clear room for improvement.
“Forty-two percent of the population are people of color. Women are 51% of the population. So we still have a long way to go,” Lissa says.
According to OnBoard’s 2022 Board Effectiveness Survey, company leaders agree that there’s room to grow, with only 62% of organizations rating themselves as effective on board diversity.
Why Board Diversity Is a Growing Focus
While many savvy business leaders have long recognized the inherent value in diverse leadership, the shift to formalizing board diversity has also been happening at a policy level.
Peter C. Browning, Founder and Managing Director of Peter Browning Partners and author of The Director’s Manual: A Framework for Board Governance, summarized how this shift has taken place over the past decades.
Board Diversity and Policy: A Timeline
- 1934: The U.S. Securities and Exchange Commission (SEC) was established to enforce the law against market manipulation
- 2001-2002: The Enron and Worldcom scandals ushered in major changes to corporate governance
- 2020: The murder of George Floyd shined a spotlight on the need to work toward a more fair and equitable society
- 2021: Nasdaq’s Board Diversity Rule was approved by the SEC, requiring that companies who trade on the Nasdaq stock exchange disclose the diversity of their boards
- 2021: Top asset manager BlackRock announced new targets for the boards of U.S. companies: 30% diversity and at least one member from an under-represented group
The most seismic policy changes have occurred in just the past three years.
“I think everyone was shocked by the horrible events of May 2020 with George Floyd,” Peter says. “Suddenly, boards started to look at themselves and pick up the pace on diversity and inclusion on committees, and also adding people of color on the board.”
In the coming years, those efforts will only continue to grow.
Why 2023 Will Be Pivotal for Board Diversity
Pledges made after the tumult of 2020 are now coming due, and it’s time for organizations to reflect their commitments in the makeup of their boards.
“Boards used to say, ‘We don’t deal with culture, we don’t deal with diversity, we don’t deal with employee issues. That’s all part of the administrative piece. We stay out of it. We look at strategy, we look at other things. That doesn’t have anything to do with risk,’” Marilyn says. “Well, we’ve seen enough cases in the news to know it does have an impact on risk.”
Respected asset managers like BlackRock and Vanguard have clarified their DEI stances to their portfolio companies. Meanwhile, Nasdaq’s diversity disclosure requirement is giving companies until this year to prove they have at least one woman and one person of color on the board.
Common Barriers to Achieving Board Diversity
New policies are essential milestones for achieving diversity. Yet many internal roadblocks prevent boards from quickly and efficiently injecting new, diverse talent into their midst.
Lack of Turnover
The first factor that prevents new faces from joining boards is that board positions, once filled, often stay filled. Private boards do not elect their members, and public boards use the term “election” loosely.
“We have annual elections generally for board members, but it’s not really an election like we normally think of because there’s nobody running against you,” Lissa says.
The result? Over half of all board members at S&P 500 companies are currently age 60-70, according to Lissa. With the mandatory retirement age set at 75, some of them will likely continue to serve for the next decade.
The bottom line is that boards that rely on retirements to refresh their board seats may need to wait a long time. The only forcing functions are if board members step down, reach the age limit, or pass away.
Lack of Evaluation
In addition to serving generous or open-ended terms, board members are typically not evaluated formally — a missed opportunity for diversity goals. If boards used evaluations to determine membership, seats would likely open more frequently, and boards would function more powerfully as the result of best-fit talent.
“The annual evaluation of directors could be used to strategically counsel people off the board, either because they’ve been told that their skill sets are no longer necessary, or they’re not performing what they’re expected to perform in the boardroom,” Lissa says.
While some boards practice annual board member evaluations, it’s far from the norm. Like your least-favorite tenured professor from your college days, ineffective board members receive little counseling and can’t be easily replaced.
Lack of Innovative Recruitment
When the rare board seat does become available, organizations meet the next common stumbling block. They vet candidates using traditional yet lackluster recruitment practices.
The first error is fishing from the same figurative pond. Are you pulling from a group that lacks diversity by default? Or are you tapping a network of people who look just like your current board?
“Typically, boards are looking for people who have served on boards,” Marilyn says. “And when the predominant group that has served on boards tends to be white males, then the population you are drawing from is not the population you’re looking for to add diversity.”
Many boards turn to two places to recruit new talent: an agency or their governance and nominating committee. When asking a committee to recommend someone who would be great for the job, a diversity problem can result. Our networks tend to consist of people like ourselves.
5 Ways to Improve Board Diversity at Your Organization
There’s no shortage of qualified candidates who can fulfill diversity goals and open board seats in one fell swoop. Here’s how to make it happen.
1. Evaluate Where You Stand
The first step is to see how your organization measures up against current board benchmarks within your industry — and then assess the gap between where you are and where you want to be.
“You must look at where you are and how it looks against those in your industry, as well as those you benchmark against in terms of pay,” Peter says.
Getting a baseline sense of where your organization sits on the DEI spectrum can help guide the scope and pace of change.
You can also take this evaluation opportunity to look at the skill gaps in your board itself. Are you missing specific skills? Do you have a succession plan for board members who may soon step down or phase out?
Answering these role-specific questions can shape a job description that gets you one step closer to seeking new candidates who meet your diversity and business goals.
2. Set Term Limits
Since lack of turnover is one of the primary barriers to increasing board diversity, one logical solution would be to set term limits. This practice currently varies greatly among public, private, and nonprofit boards.
Very few publicly traded companies have term limits for corporate board members. According to Lissa, only 6% currently have term limits, and when they do have limits in place, the average term limit is 15 years.
“In the nonprofit boards that I’ve sat on, term limits are much more common and the terms shorter, which seems like a refreshing way to get new talent and new blood into the boardroom,” Lissa says.
In addition to implementing term limits, consider rotating members in and out of roles of greater authority, such as committee chairs. This will ensure that one person doesn’t monopolize a high-profile board role for too long and give a chance for diverse faces to sit at the proverbial head of the table.
3. Conduct Annual Evaluations
We mentioned that the practice of evaluating board members is rare-to-nonexistent. You wouldn’t hire an employee and then skip their annual review for 10 years. So why would you bring on a board member with no intention of counseling or checking in?
But in addition to evaluating individual board members, there are other ways to conduct holistic board checkups and self-reporting.
Many companies are creating Human Capital Management committees to facilitate organization-wide diversity and SEC reporting requirements. If your organization follows that path, one possibility is to turn the committee’s attention to the organization’s workforce and the board itself.
“If there is a human capital strategy committee, what is the authority of that committee?” Marilyn says. “Not only should the board look at the company in terms of diversity and inclusion and equity, but it should also look at itself for that — and report on its own structures.”
Boards that take steps to self-reflect and self-govern will quickly gain internal awareness of what needs to happen to generate more inclusion.
4. Fill Openings Intentionally
While it’s easy to fall back on filling board seats by asking who knows whom or tapping non-diverse networks, there are other ways to find and attract diverse talent.
First, start contributing to efforts to increase the transparency of board composition. Showcase the diversity you already have, or publish your goals to make prospective board members feel welcome.
Next, seek out new recruitment platforms. Lissa and Marilyn facilitate registries where diverse directors and potential directors can upload a resume and showcase their industry expertise. They regularly conduct searches at the request of for-profit and nonprofit boards to provide candidate lists that meet their specifications.
5. Add Net-New Board Seats
Finally, if you don’t want to force current board members to step down or shorten their terms, the ace move is to increase the size of your board.
According to Peter, you can approach this in different ways. One way would be to expand the entire board footprint if changing business needs warrant additions.
Another option is temporarily increasing the size as you pass the reins to new talent. This allows you to bring on someone new and comfortably onboard them while the current director prepares to phase out.
Both options allow you to get fresh, diverse faces into your boardroom more quickly.
Make Diversity a Must-Have
Enhancing board diversity is a no-brainer in today’s environment, and there are plenty of tangible ways to start. Remember that the final hurdle is overcoming underlying bias: It’s important to recognize that you don’t need to sacrifice anything to enhance diversity.
“Greater diversity on the board is going to then be reflected in greater diversity on the executive leadership team. Both of those things combined are proven to provide greater shareholder returns,” Marilyn says.
Financial returns aren’t the only thing that matters. Investing in greater diversity means investing in greater perspectives, greater inclusion, and the greater good.
If you’re looking for more insights that support your board on its way to greatness, explore the rest of the ATLAS Leadership Series.
About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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