Diversity Comes With Plenty of Benefits

Studies show that companies that rank high for gender diversity economically outperform boards that don’t, so the reasons to make your board more diverse don’t end at equality. Diversity is also more profitable.

Powerful Entities are Leading the Way

From Nasdaq to Goldman Sachs to the EU, some of the world’s biggest and most powerful organizations are emphasizing board diversity. This is creating a trickle-down effect to smaller organizations as well.

There's Still a Long Way To Go on Board Diversity

While plenty of progress has been made, there’s still more to make, from the number of women who hold board seats to an over-emphasis on networking when filling board seats, which shrinks the candidate field.

Building a More Diverse Board

Webinar recap: Breen Sullivan and Kat de Haën, co-founders of The Fourth Floor (soon to be known as The Fourth Effect) explore the state of board diversity – and what boards can do to bolster their diversity.

In today’s world, bolstering diversity has become a key priority for boards of all sizes and industries. This isn’t surprising. A diverse board brings a variety of perspectives and experiences to the table, which can lead to better decision-making and innovation.

Yet, diversity is an area where many boards continue to struggle. The OnBoard 2022 Board Effectiveness Survey found just 62% of respondents feel their board is effective when it comes to diversity.

Why does diversity matter more than ever? And, what can be done to build a more diverse board?

Recently, Breen Sullivan and Kat de Haën, co-founders of The Fourth Floor (soon to be known as The Fourth Effect) joined us for an ATLAS Leadership Series webinar focused on the topic of building a more diverse board.

The conversation spanned topics including:

Traditional blockers boards from reaching diversity goals
Best-practice actions boards can take to increase diversity
How to build better board talent development pipelines

Here, we cover some of the top takeaways from this important, timely conversation.

The Benefits of Board Diversity are, Well, Diverse

Increasing diversity is simply the right thing to do. However, diversity also drives some powerful results for boards.

When all board members have similar backgrounds and experiences, they often think similarly, too. On the other hand, a diverse board allows for diversity in thought. As such, having a board with unique backgrounds and perspectives can fuel better decision-making.

Sullivan also pointed out the large gender power and wealth gap. Bolstering diversity is an important way to level the playing field – and create a more equitable world. “Getting diversity at the table is a way to shift money and power,” she explained.

Finally, increasing diversity drives bottom-line results. “We shouldn’t have to make the economic case for diversity, but we do,” said Sullivan.

Companies in the top quartile for gender diversity were 21% more likely to outperform in profitability and 27% more likely to have superior value creation than their less-diverse counterparts.

While Diversity is Improving, We Still Have a Long Way to Go

A growing number of boards are making diversity a priority. But while board diversity is certainly trending in the right direction, the statistics are still quite bleak. “The vast majority of public and private company board members are white men,” said Sullivan.

According to the 2021 Study of Gender Diversity in Private Company Boardrooms, only 14% of board seats are held by women. It’s important to note that this data is based on a self-selected study of only 500 venture-based private companies in the U.S.

What’s more, fewer than 5% of these board seats are held by women of color. In fact, there are more board members with the names “Dave” or “David” than there are women of color.

Clearly, women (especially women of color) aren’t getting the same opportunities as men, and the wealth and power gap persists. Even women in leadership positions don’t hold equal power to their male counterparts. Sullivan shared another statistic that male executives control 99% more S&P 500 shares than women.

This lack of diversity is bad for businesses too. “Smaller and mid-sized companies are missing out on the value diversity brings at the board level,” Sullivan said.

Board Diversity Has Become a National Discussion

The good news is, there is action being taken to increase diversity at the board level.

In 2018, California passed a law requiring public companies to increase gender diversity. A U.S. District Court struck down the law last year, but not before it created a wave of change in California – and started a national conversation about the importance of diversity on boards.

Before the law was passed, 28% of companies in California had no female directors. In 2021, that number dropped to 1%. In addition, the number of board seats held by women doubled from 2018 to 2021.

Mandates including those from Nasdaq and Goldman Sachs have also forced companies to focus more on diversity – an effort that benefits individuals and businesses alike.

“Companies are going to perform better if they’re taking advantage of diversity at the board level,” said Sullivan.

The EU has also agreed to a “landmark” deal for gender equality – requiring a 40% quota for women on corporate boards by June 2026.

“The tide will catch up in the U.S. eventually,” said Sullivan. “Companies will be left behind if they’re not thinking about this right now.”

Barriers to Board Diversity Must be Overcome

Clearly, diversity is important – and beneficial. Yet, barriers stand in the way of more diversity at the board level. One such barrier is the way directors are recruited.

Some may argue that diversity quotas present a pipeline problem. These people argue that quotas mean they have a smaller pool of candidates to recruit from. But this isn’t the case.

“It’s not a pipeline problem as much as it’s a network problem,” explained Breen. “If you aren’t tapped into networks that enable you to access a large pool of diverse talent, then you are pulling from a smaller pool.”

Sullivan shared a statistic that 92% of board seats at tech companies are filled through networking, and less than 15% of public company board seats are filled by recruiters. The problem lies in the fact that board directors’ networks are typically full of others like them.

“There are only 27 degrees of separation between all sitting directors globally,” said de Haën. “That means from a small cap company in India to a large cap company in the U.S., it’s a VERY small network.”

Boards must rethink how and where they’re sourcing director candidates. For example,

The Fourth Floor (soon to be known as The Fourth Effect) connects organizations to board-ready women.

Though barriers exist, boards must overcome these barriers – and increase diversity. “This is money and power, and this impacts us all,” concluded Sullivan. “ It’s better for our economy if this is righted.”

Technology is changing at breakneck speed. Are you looking for a roadmap to navigate this game-changing terrain? If so, be sure to save your seat for our next ATLAS Leadership Webinar, Cyber-Ready Leadership: Directing in the Age of AI and Cyber Risk, featuring cybersecurity expert Chris Hetner, distinguished board director Betty DeVita, and leadership guru Stuart R. Levine.

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