Diversifying the Corporate Boardroom

Diverse talent is abundant, but do you still need to know the secret handshake?

A small group of tenured leaders, corporate board members have always been chosen from behind closed doors and often from a pool of insiders who are predominately white men. Although corporations have at least acknowledged the need for diversity, achieving that goal has proven elusive as boards tend to be small and turnover infrequent. But the biggest factor frustrating those diversity goals is also the natural tendency to choose from within one’s own ranks. Whether it’s a group of high school students choosing who is on the prom committee, or the leaders of industry who guide the world’s biggest corporations, the path of least resistance is to serve with others who think – and look – like us.

Studies show however, that those companies who keep the boardroom white and male are missing out on an opportunity for deeper insights, outstanding talent and shareholder growth, not to mention a more inclusive outlook that resonates with a younger consumer and investor base.

Joining a very exclusive club

Corporate CEOs often serve as the public face of the company, and are sometimes chosen for their gregarious nature and understanding of public relations as much as their deep business expertise. Their public statements are scrutinized daily by the press, by politicians and by Wall Street analysts, and those statements can greatly impact the fortunes of the company. But behind the scenes, corporate boards play an even greater role, guiding policy, setting goals and carrying out their fiduciary duty to shareholders.

But while companies sometimes change their CEOs as often as a fashion model changes her Jimmy Choos, board members often have long tenures, which sometimes frustrates attempts at bringing in a new level of fresh talent and diversity at the very highest levels.

A survey from the Institutional Shareholder Services’ ESG division recently noted that Black directors make up four percent of the total number of directors in the 3,000 largest publicly traded companies, which remain dominated by white men; Black women make up only 1.5 percent of the directors included in the survey.

That startling statistic has not stopped Teri McClure, who currently sits on four corporate boards and broke ground early in her career by being the first Black female SVP at UPS.

“A lot of board seats are filled by relationships,” said McClure. “I do think that boards are trying to cast the net a little more broadly, but there is a premium paid to relationships, fit and compatibility. Are we going to be comfortable? Are we going to be able to continue to joke and kid the way we do? By knowing someone and having seen them in action, people will have a higher comfort level with that. Relationships will continue to be very important, but unfortunately I think it does limit the opportunities for women and African Americans.”

That’s not to say that there is forward movement on that front, and McClure’s success is becoming less of an outlier and more mainstream. “Women and African Americans are moving into those circles to a higher degree,” she said. “And that is creating opportunity.”

Changing how board members are discovered

That tendency to stick with your comfort level of bringing in people who went to the same school as you, have the same interests, live in the same neighborhoods and go to the same clubs may seem intractable. We have after all, been doing it ever since grade school. At the board level though, stakes are much higher – and companies that are directed by an insular group of like-minded people who all think the same are going to miss out on different perspectives that, once they are actually considered, create a level of freshness and innovation in companies that results in stellar performance, and ultimately, increased shareholder value.

“For many companies, the consumer base is very diverse,” said McClure. “If you are not bringing those perspectives to the table, then you are going to be narrow in your thinking in how best to serve those communities. It’s incumbent on a company to get wider perspectives on the variables that impart success to that organization. Including diverse skill sets, diverse backgrounds and diverse cultures can’t help but allow the company to be more successful.”

Today there is certainly no shortage of highly talented women and African American candidates, despite the recent comments of Wells Fargo CEO Charles Scharf, who had a “foot-in-mouth moment” when he asserted in a company-wide memo that “the unfortunate reality is that there is a very limited pool of Black talent to recruit from.”

McClure has earned board seats at GMS, JetBlue Airways, Lennar Corporation, Fluor Corporation, and BoardProspects; the latter actually provides a platform that promises to bring fundamental changes to how companies recruit for their boards. “BoardProspects has a very disruptive technology platform that allows for the creation of a community of very high-level senior people,” said McClure. “There is a lot of prominence around being on a board, and in the past you just had to be asked. It was something that was done behind closed doors and very secretive and selective. BoardProspects creates a pool and give companies exposure to talent they might not otherwise come across. This is the next wave of opportunity – to have access to a broader group of people through technology.”

Diversity leads to outperformance

In a 2019 PwC survey, it was found that Board-level diversity brings unique perspectives to the company while enhancing performance and improving investor relations and also enhancing the overall performance of the company. In addition, a McKinsey study showed that executive teams with the highest levels of ethnic and cultural diversity consistently performed better.

“I absolutely believe that to be the case,” said McClure. “I think it’s hard to pinpoint any one factor as being determinative of success for a company because there are so many variables. But I certainly believe that when you have a company that is embracing and is open to a diverse set of talent, they are going to pick the best, and that is going to make them the best. That will allow them to perform better, because they are not excluding talent or skills sets by not being open to considering women or people of color. It allows them to get the cream of the crop, and to be as successful as possible. Over time we will see more evidence to support that from an even larger data set to support that proposition, but it’s certainly something I believe, and something I’ve seen in the course of my work.”

It’s not just about checking the box

Corporations are feeling pressure to diversify their boards from outside groups, from consumers of their products, and from within their own ranks; some states like California are also considering legislation to mandate diversity. But it’s not just about checking off a box for compliance purposes. “Millennial generations, and those after the millennials, have a greater expectation for the companies they work for and the companies they buy from,” said McClure. “And you’re seeing that play out even to a larger degree now, and some of the racial justice focus is much more than it’s ever been. There is an expectation that companies do have a responsibility to engage in areas that are beyond the short-term profit motive.”

Publicly-held companies are on board. The Business Roundtable, a group representing the most powerful CEOs in the country, published new guidance on the role of the corporation that moves away from the “shareholder first” Friedman Doctrine and short-term focus on quarterly returns, and more towards an environment where the needs of all stakeholders are considered. That companies acknowledge the need to diversify their boards does two things: It falls in line with the Business Roundtable’s stakeholder guidance and serves the broader community, but as shown by the PwC and McKinsey studies, doing so actually does serve shareholder value by creating an inclusive environment that leads to outperformance in the long run.

The benefits of diversity in the boardroom, however elusive achieving that goal may be, are clearer than ever today. Millennials and younger generations will patronize companies more that are doing so. Long-term profitability and shareholder value will increase. Companies will be exposed to a greater set of viewpoints and experiences so that they can better serve not only their customers, but their shareholders as well. As we continue to move towards a more tech-focused, online platform-based environment, the process of finding highly qualified and diverse board members is rapidly becoming less of a backroom secret handshake process, and something much more open and transparent.

 

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Dan Blacharski

Dan Blacharski is a thought leader, advisor, industry observer, and author of the book “Dotcloud Boom.” He has been widely published on subjects relating to customer-facing technology, fintech, cloud computing and crowdsourcing, and he is editor of TheVivant.com. He lives in South Bend, Indiana with his wife Charoenkwan and their Boston Terrier, "Ling Ba."

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