Five Insights for Improving Diversity in the Boardroom

0
519
three people (one man, one woman) sitting at table and a woman standing, have a conversation

If you lead a tech company and your board is primarily older white men, you are not alone. Tech boards are close to 80% white and male despite a widespread understanding that diverse boards yield better decisions, financial performance, employee retention and customer satisfaction. In this post, we will share five insights to help business leaders think about how to bring more diversity onto your company’s board.

  1. Improving Performance

There is a lot of research that finds board diversity is a strong indicator of both decision-making quality and financial performance. According to McKinsey, gender, ethnic and cultural diversity within company leadership correlates to better financial performance. They found that diverse companies make better decisions, and are better able to attract top talent, improve customer orientation and employee satisfaction. Similarly, BCG found that companies with above-average diversity on their management teams “reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity—45% of total revenue versus just 26%.”

2. Wind of Change

When it comes to diversity in the boardroom, we can see the growing wind of change, beginning with Norway in 2003, followed by France, Spain and Italy, where governing bodies have increasingly mandated board diversity for publicly traded companies.

In 2018, California became the first US state to pass a board diversity mandate, followed by Illinois and Washington. Massachusetts, along with Hawaii, Michigan, and New Jersey, are in the process of drafting similar legislation. Furthermore, investors like State Street Global Advisors and Blackrock have begun voting against directors where boards lack diversity and adequate refreshment practices.

The 2020 Census of Women Directors and Executive Officers report, released by The Boston Club and Bentley University, looked at the 100 largest public companies headquartered in Massachusetts, and found that, for the first time, every company in their census had at least one woman on the board of directors. The report also found that the technology sector, the largest in the survey representing 28% of the companies, had the lowest percentage of women directors (22.1%). Furthermore, women of color accounted for just 3.1% of directors overall.

3. Supply or Demand

If diversity of thought and experience in the boardroom improves company performance and our competitors stand to gain advantage if we fail to improve, then the constraint must be the pipeline, right? Wrong. Contrary to conventional wisdom, qualified candidates are not the constraint. The constraint is on the demand side. The typical public company board has just under 11 members with average tenure of about eight years. This puts the board refreshment rate at about 1.375 per year.

While there has been public pressure for boards to enact term limits and mandatory retirement ages, the former has been unpopular with only about 5% of the S&P adopting term limits. The latter seems more successful with 71% enacting mandatory retirement ages; however, the limits are getting increasingly older and now average 75 years of age, giving director a lot of runway to stay for as long as they want.

While experience and continuity are important, the low turnover rate increases the importance of each new director decision. This is compounded by traditional board searches that rely on existing (homogeneous) networks. This refreshment rate and recruitment as usual on the demand side is the greatest limiting factor in bringing greater diversity onto tech company boards.

4. Intentionality

The refreshment rate issue is compounded by the narrow candidate aperture and existing legacy networks that lack broad diversity. Here, intentionality matters. Traditionally, boards have contended that CEOs or people who have board experience make the best directors, thereby precluding many qualified women and people of color. Times are changing and it is becoming increasingly understood that a broader range of perspectives and lived experiences is needed in boardroom.

Today, rather than generalist board members, companies are seeking directors with deep domain expertise in areas where the company is facing challenges or seeking strategic advantage, such as talent management, digital transformation, cybersecurity, global operations, innovation, etc. This wider aperture broadens the candidate pool, creating more opportunities for women, LGBTQ+, and leaders of color.

Without an intentional focus, however, the inertia in board recruiting will land more candidates cut from a familiar mold. There are plenty of women, leaders of color and LGBTQ+ leaders with the deep expertise, strong qualifications and diversity of thought to meet your board recruitment goals, especially when considering most companies are seeking only one or two directors at any given time. Leaders seeking change need to be intentional in their recruitment strategies, seek new networks, and find the connectors who help ensure diverse candidates are being considered.

5. Helpers & Networks

To achieve results, as in any part of our business, we must be intentional about our goal and work the problem. Tell our board recruiters that diversity is a requirement and get new recruiters if they come up short. Open the aperture of our board search to be inclusive of a broader set of candidates. Leverage networks of women, people of color, LGBTQ+ leader. And, find new helpers.

There are many experienced corporate directors in the MassTLC community who understand boardroom dynamics, appreciate the need for the right “fit” with the other directors, and are willing to help make introductions to qualified, diverse candidates. Many have been faculty or leaders in our Board-Ready Bootcamp and have access to hundreds of diverse leaders with the skills and experience to be productive members of your board.

As you work to refresh and bring greater diversity to your board, consider MassTLC as a resource. Through our network, we can help you expand your pool of qualified and diverse candidates for consideration. There are no fees and nothing to lose by expanding your network and getting a few additional candidates to consider in your search. Our interest is solely to improve board composition in the tech sector.

If you are conducting a board search, please contact us at nayla@masstlc.org and let us see if someone in our network can help identify a few additional candidates for consideration.