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Boards are Becoming More Diverse
32% of board members among S&P 500 companies are women, and 22% are people of color, both all-time highs. But those totals are much lower at privately held companies.
Low Turnover, Poor Recruitment are Factors
Long term limits, no term limits, and recruitment practices that rely too heavily on networking limit opportunities for boards to diversify their ranks.
There are Ways to Build More Diverse Boards
Board evaluations, advisory boards, and increasing the number of board seats are just a few of the ways boards can diversify their boardrooms.
Webinar Recap: Lissa Broome, Head of the Director Diversity Initiative at UNC School of Law and Marilyn Nagel, Co-Founder & Chief Advocacy Officer at RISEQUITY explore the barriers toward broader, more inclusive board representation – and how to overcome them.
Increasing diversity, equity, and inclusion (DEI) on boards has always been important. But today, with Nasdaq’s new rule on board diversity reporting as well as a societal focus on creating a more equitable world, it’s become a top focus at boards of all types and sizes.
The benefits of increasing board diversity are undeniable. But it isn’t always easy, and many boards find themselves falling short. According to OnBoard’s 2022 Board Effectiveness Survey, only 62% of organizations rated themselves as effective on board diversity.
In today’s world, bolstering DEI in the boardroom is no longer optional. Rather, it’s essential. Boards must work to identify the barriers that stand in the way of this important goal, and then take appropriate action to overcome them.
But where can they start?
Last month, Lissa Broome, Head of the Director Diversity Initiative at UNC School of Law and Marilyn Nagel, Co-Founder & Chief Advocacy Officer at RISEQUITY, joined OnBoard for an Atlas Leadership Series webinar to discuss the challenges faced by boards looking to increase diversity – as well as how to overcome these challenges to create a more inclusive board. They addressed topics including:
In this blog, we’ll recap our key takeaways from the session.
The Board Diversity Landscape Today
Lissa kicked off the conversation by discussing the state of board diversity today. In 2022, 32% of board members at S&P 500 companies are women, and 22% are people of color. Those are all-time highs in terms of gender and racial diversity.
Diversity is lower at private companies. According to data from a subset of 500 private companies from about a year ago, only 14% of board members at private companies were female – and 22% were people of color.
There’s no readily available data on nonprofit board diversity. However, anecdotally, it seems diversity is at least somewhat stronger.
While board diversity is certainly moving in the right direction, there is still a long way to go, as 42% of the population is people of color – and women make up 51% of the population. That’s not to mention other underrepresented groups such as those with a disability or members of the LGBTQ+ community.
The Top Barriers to Board Diversity
What exactly is standing in the way of more diverse boards? As it turns out, there are many barriers, many of which Lissa and Marilyn explored.
Lack of Turnover on Corporate Boards
There’s a lack of turnover on boards – especially corporate ones. At S&P 500 companies, there were only 395 new directors appointed in the 2022 proxy year – which averages out to less than one per company. Nearly three-fourths of these new directors are from historically underrepresented groups, which shows that diversity is a focus.
Typically, boards have elections either once a year or one every three years if there are staggered terms. But oftentimes, directors run uncontested, so they’re renominated time and time again.
To make matters worse, very few public companies (a mere 6%) have term limits for corporate board members. Among those who do, 73% have terms limits of 15 years or longer.
All too often, directors sit on boards for years on end, and boards rely almost exclusively on retirement, voluntary step-down, or death for board refreshment. That means the opportunities to bring in fresh, more diverse blood are often few and far between.
The Way People Enter Board Service
Another barrier to board diversity is the way people traditionally enter board service – and the criteria they must satisfy to be considered.
When looking for new board members, current directors are often asked to tap into their networks. But the problem is, our networks tend to be made up of people like us. So, if a board is full of white men, they likely have networks made up of white men.
The requirements boards establish for candidates can also be a barrier to diversity. For example, boards typically seek out prospective directors with board experience. However, the prominent group of people who meet this criteria are white men. It’s nearly impossible to recruit diverse candidates from a group that largely looks the same.
In addition, governance and nominating committees often seek out prospective board members who are CEOs or in the C-Suite. However, there is a lack of historically underrepresented groups in these roles. For example, only about 5% of CEOs are women. It’s nearly impossible to find diverse candidates when tapping into a small, homogenous pool.
Some boards believe they’re sacrificing something to bring on more diversity. For example, they might think that focusing on bringing on a woman, person of color, or member of another historically underrepresented group means they’ll miss an opportunity to add someone with the necessary skills. Others might believe that doing the bare minimum to meet Nasdaq’s requirements – adding one woman and one person of color – is good enough.
These are both myths. There are plenty of qualified candidates from underrepresented groups. Finding them requires boards to cast a wider net and start looking in the right places.
What’s more, boards shouldn’t perceive increasing diversity as “one and done.” Instead, it should be an ongoing focus.
Actionable Takeaways to Overcome Obstacles to Build More Diverse Boards
There are myriad obstacles that stand in the way of a more diverse boardroom. However, they’re possible to overcome. Lissa and Marilyn shared several practical tips for overcoming obstacles – and bolstering board diversity. Here are a few.
Term limits are rare on corporate boards. Take a page from nonprofit boards and consider a nine-year term limit for board directors.
Annual evaluations of directors are common on many boards. However, action is rarely taken on these evaluations. Use these evaluations to counsel out those who aren’t contributing because of stale, irrelevant skillsets, or other reasons. This will open seats your board can fill with diverse candidates with necessary skill sets.
Then, focus on filling them with diverse candidates. When recruiting candidates, diversity should be a must-have, not a nice-to-have. Require any agency you use to send you diverse, qualified candidates. They’re out there.
Public companies are becoming more transparent about board diversity. However, it’s harder to find this information about private and nonprofit boards. Your stakeholders care about the makeup of your board, so be transparent.
It’s important for a board to not only evaluate each director on an annual basis but also the board as a whole. Part of this should be taking a hard, honest look at the structure of the board, how it operates, and its equity and diversity. This evaluation can shed light on steps the board can take to be more inclusive.
Some industries — including banks — have seen success with advisory boards. Oftentimes, an advisory board is created based on a market a business is either struggling with – or wants to break into. For example, a business may want to increase their focus on millennials, so they create an advisory board made up of folks from this generation. Because advisory boards are less rigid and its members aren’t involved with governance, it’s possible to recruit members with less experience. However, these folks can be trained to be the next generation of the board.
Looking for more insights for improving board diversity? Save your spot for our next Atlas Leadership Webinar, Equitable Diversity in Extreme Environments, featuring Col. David Fivecoat, founder of Fivecoat Consulting Group.
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