Board composition is receiving particular interest as recent studies indicate strong correlation between board diversity and company earnings. Diverse boards exhibit a broader range of perspectives, which can broaden a company's awareness of risk and revenue opportunities. In many industries, a diverse board is paramount to representing multiple stakeholder perspectives. Company shareholders, customers and employees are all more diverse than the average corporate board. Board seats at companies in the S&P 500 in 2016, for instance, were occupied by roughly 21% women, 79% men. As of the 2010 census, population distribution in the United States was closer to 50/50. When crises strike (as they inevitably do), diverse boards tend to meet them with greater flexibility and ingenuity. What these boards demonstrate, more than anything else, is diversity of thought.
So why is "diversity of thought" important? The board's purpose is to insure corporate governance. This is all the more critical in the U.S. where the CEO is often also the board Chairman. In Europe, by contrast, the Chair is an independent role, which can improve board oversight. On both sides of the pond, corporations benefit from varied experiences and perspectives of a dynamic board that is willing to assert its independence and judgment when necessary. If the board simply exists to rubber-stamp the CEO's decisions, then it abdicates its crucial responsibility.
In the best cases, a board that demonstrates diversity of thought will collaborate to achieve shared, collective goals. The point isn't to generate competing priorities, but to approach problems from different angles, based on the board's wide variety of experiences. A company that wishes to achieve true diversity of thought will ensure that its board is diverse in several respects:
While some of these categories are not exhaustive, they highlight how diversity of thought arises from multiple individual factors of contrast within a board. Understanding how to effectively diversify a board can seem difficult, but it doesn't need to be. I started BoardReady, a non-profit that is dedicated to helping corporate clients and investors increase boardroom diversity. From thinking through realistic diversity targets using the BoardReady Index to benchmark against a peer set, to a customized BoardFit Analysis that works with the board to build a diversification strategy delivered by seasoned, experienced board directors, BoardReady amplifies options to diversify.
If nominating committees broaden their scope and include diversity as a factor of succession planning, the result would be better boards, making better decisions, that better reflect stakeholders and ultimately creating more successful and sustainable companies. Nominating committees and the boards they represent would be well served to take a holistic approach, illuminating a range of perspectives that would help the board govern more effectively. True diversity of thought goes far beyond 'checking the box'. It incorporates a wide array of approaches to achieve a common goal, leading to stronger results and more resilient strategies for the future.
For more information about board diversification, please contact info@boardready.io