Are you wondering why and how to increase board diversity? Or what exactly board diversity is? Is it just the latest social trend — or does it actually have a positive impact on corporate boards? Should you be working on increasing diversity in your board of directors, and if so, what is a good way to go about it?
Long story short, knowing how board diversity affects governance is crucial. For instance, as Harvard’s career expert Heidi K. Gardner points out, women leaders are likely to spend twice as much time on collaborative efforts that fall outside of their formal job description.
That said, board diversity matters — and here’s why…
What is board diversity?
Simply put, a diverse board includes a significant number of men and women who come from various professional backgrounds, belong to different races and ethnicities, and are in different social and age groups.
What are the benefits of board diversity?
There have been multiple studies into the impact of diverse workforces on business success. One of the most recent from McKinsey reveals that top-quartile companies in board diversity have a 39% greater likelihood of financial outperformance versus bottom-quartile peers. That’s up from 15% in 2015.
But there are other benefits of board diversity beyond the purely financial. Let’s have a look at some of the benefits of improving board diversity.
Insights into diverse markets and customers
If your board includes a significant number of women, or people from ethnic minorities, it can count on their insights into the preferences and culture of those social groups. This will help the corporation better understand how to work with them as partners and serve them when they’re customers.
Better decisions
People from different backgrounds and experiences bring new skills to a board. They might identify problems or suggest solutions that may not have been considered had the board been more homogenous.
“We want to get away from the ‘old boys club’,” explains Anthony Goodman, Senior Client Partner and Head of Board Effectiveness at Korn Ferry. “The view of investors is that, if you put diversity in the room, you get a better decision.”
Greater creativity and innovation
A homogenous board can tend to groupthink and never try anything new. Throw different people into the mix, and you greatly increase the chances of some really creative ideas coming out of your next board meeting.
Greater social responsibility
It’s harder for a corporation to champion social responsibility if all its board members are far removed from the consequences of social issues. “It’s hard to be a leader if you don’t know what’s happening,” Goodman warns. Diverse board members can help eliminate this problem because they have a more direct experience of certain social problems.
Increased trust and better reputation
When a board has larger knowledge and deeper insights, makes better decisions, is more creative, and takes responsibility for how its actions affect society, it’s natural that stakeholders will trust it more. As a result, the company’s public reputation – and finances – will improve.
In the latest PWC Trust survey, 42% of executives cited customer engagement as the biggest risk to their business – unsurprising given that four in 10 consumers would stop buying from a company they don’t trust. On the flip side, 61% of consumers will recommend a company they trust to friends or family and 46% will buy more.
Common challenges for implementing board diversity
Board diversity has been improving. A 2023 report from The Conference Board and ESGUAGE noted that the share of female directors had increased from 23% to 32% over five years. However, the reported growth in both racial and gender diversity is slowing and in 2023 the percentage of new diverse board members declined. Female board member intake dropped from 43% in 2022 to 38%, and new ethnic members dropped from 45% in 2022 to 36%. But why?
The main reason why corporate boards lack human diversity it’s a very human one: inertia. Most people naturally tend to avoid discomfort, which means we avoid extra effort and change. So we keep doing what has always been done.
“Board chairs are very influential and most are older, white men. Even if you know what’s happening, you may not have the tools, you may not feel comfortable having these conversations in the boardroom,” Goodman explains.
But what are some of the specific obstacles to having a diverse board — the most common reasons and excuses people give for not implementing board diversity?
Too few diverse candidates
Board members would like to invite more women, and people from different ethnic and professional backgrounds, to join the board. But claim it’s hard to find diverse candidates with the right professional qualifications in those groups.
Too narrow a view of diversity
”After the murder of George Floyd, there was huge demand from boards to further diversify,” Goodman states. “The previous movement was to put more women on boards. But the side effect has been that other under-represented groups such as different ethnicities, receive less attention.”
Limited networks and recruitment practices
The system for choosing new board members makes it difficult to find and choose people with diverse characteristics — members invite people they already know and network with, but they tend to network with those who are similar to them.
Unconscious bias and stereotyping
Existing board members aren’t even aware that they automatically discount certain candidates just because they are women, or because they have a different education or social background from most of the board.
Incumbent board members’ unwillingness to change
Existing board members are aware their prejudice makes them lean towards a specific type of candidate to the detriment of the others — but they don’t see that as a problem for the board or the corporation.
8 efficient ways to increase board diversity
We’ve gone over the benefits of board diversity, and checked the challenges you are most likely to encounter when implementing it. Now let’s have a look at potential ways to improve board diversity.
- Audit the diversity of your board
- Establish diversity targets
- Enlarge the pool of qualified candidates
- Make inclusion a part of your corporate culture
- Educate your board about unconscious bias
- Conduct blind candidate evaluations
- Use the best tools to achieve a diverse board
- Track and measure progress
Audit the diversity of your board
Knowing the terrain is the first step to any successful strategy. Map your board members, find out how much racial and ethnic diversity you have, and whether there’s room for improvement.
Establish diversity targets
The audit has exposed a few deficiencies in your board when it comes to diversity. Now you can draw a board diversity policy. Decide on criteria — for instance, do you want your board diversity to mirror the diversity of your country, your company, your client base? — and set concrete goals to be attained within a specific time frame.
Enlarge the pool of qualified candidates
If you find no suitable diverse candidates within your usual candidate pool, work on enlarging the pool by making your selection criteria more flexible. Focus on the person more than on their professional experiences and qualifications. For instance, you might consider people who have never been a C-suite executive, but who have a proven record of being knowledgeable, intelligent and collaborative.
Make inclusion a part of your corporate culture
If you really want a more diverse board, you will get there much quicker by fostering inclusion at all levels and in all departments in the company. You can for instance foster age inclusion by creating a mentoring program where members of senior management mentor junior employees.
“There has been a huge focus on diversity, but what about inclusion? Do boards get the benefit of the diversity they’ve been chasing,” Goodman asks. “[In our research] we wanted to ask about the influence [new placements] had on board decisions, whether they feel listened to.”
Educate your board about unconscious bias
This can be a part of the previous step. Often we make groundless assumptions or hold random beliefs that we are not even aware of. It can be worthwhile to talk to your board about this, to help them see beyond the usual sex, age, and racial and social categories when it comes to choosing new members.
Conduct blind candidate evaluations
If your diversity audit has shown that your board skews too aged, or too white, or too upper class for instance, you can take action and change your evaluation method. Analyze based on a CV that includes their professional experience and accomplishments — but omits their age, race and social background. This will make diverse candidates more likely to be immune to bias and prejudices.
Use the best tools to achieve a diverse board
Any task is easier to accomplish when you use the right tools. Board management software makes it easy for you to create a database of board members’ profiles, and extract diversity information from them. This way you can run your diversity audit and keep track of progress as you implement your board diversity strategies.
Track and measure progress
Keep track of the results of your board’s efforts towards diversity. You will more easily identify gaps, spot obstacles that need to be addressed, and the board will be more motivated by being aware of its progress towards becoming a more diverse board.
Board diversity examples
Intel
In 2015, Intel decided to increase the number of women and underrepresented minorities both in its workforce and in leadership positions. The company established a $300 million initiative called Diversity in Technology, which included efforts to increase diversity in its board of directors. The next year, Intel added two new directors to its board, and three years later, half of the company’s board was made of women and underrepresented minorities.
PepsiCo
This company already has quite a diverse board – out of 13 members, four are women, three are Black, and two are Hispanic. Now PepsiCo is working on reaching the goal it announced in 2020 – to expand diversity beyond the boardroom and onto managerial positions. They are working with historically Black learning institutions, as well as Hispanic organizations, in order to increase the number of Black managers by 30% and Hispanic managers by 10% until 2025.
Nasdaq
In order to foster diversity on company boards, this stock exchange market passed a resolution in 2021 demanding that for a company to be Nasdaq-listed, it must disclose its board diversity statistics. And not only that – it must have at least one director who is a woman, and one who comes from an under-represented minority, or else present an explanation for not having one.
In short
- Board diversity is important not because it makes a corporation look good (though improving your reputation is always great!), but because it actually expands the board’s knowledge pool and helps it make better decisions.
- There are many approaches to how to increase diversity on a board, such as establishing targets, enlarging the candidate pool and fostering inclusion company-wide. It’s important you develop a diversity strategy that uses the most appropriate tactics for your company.
- One way you can start the process of increasing diversity in your board is to use board portal tools to run a diversity audit, then place diversity on the agenda of your next virtual board meeting.
The iDeals board portal is one you can use in all confidence, as it offers you a great number of board management tools besides the ability to run paperless board meetings. It has consistently been a top choice of our experts over the years.