Gor­don Group

Com­pa­nies like to talk about pro­mot­ing di­ver­sity, but the facts tell an­other story.

CEO Magazine North America - - CONTENTS - BY SUZANNE FOLSOM & DEB­O­RAH BEN-CANAAN*

Just check­ing the box won’t re­sult in board di­ver­sity.

LACK OF DI­VER­SITY in Amer­ica’s cor­po­rate board­rooms is a well-doc­u­mented is­sue. Ma­jor cor­po­ra­tions have been pub­licly skew­ered by their own em­ploy­ees and share­hold­ers, cus­tomers, leg­is­la­tors, and the me­dia for the stub­born uni­for­mity of their boards. The de­mand for di­ver­sity in the board­room has grown ex­po­nen­tially louder in re­cent years; many com­pa­nies have promised to do bet­ter, and a few have ac­tu­ally done so, ei­ther be­cause it’s the right thing to do, or to al­le­vi­ate a PR night­mare—or both.

The bad news how­ever, is that de­spite pub­lic outcry and hand-wring­ing, lit­tle has ac­tu­ally changed.

In fact, boards re­main fright­en­ingly ho­moge­nous. In 2017, Deloitte found that just 14% of board seats in the Amer­i­cas are held by women, up just slightly from 12% in 2015. And the pro­por­tion of fe­male board chairs— which is less than 4%—did not change dur­ing that time. More­over, a 2016 study of the S&P 500 boards found that the num­ber of new African-Amer­i­can, Latino, and Asian board mem­bers had ac­tu­ally de­creased from the year be­fore. Of the 345 board seats filled that year, 8% were African-Amer­i­can, 5% were Latino, and 2% were of Asian de­scent. And in March 2017, the In­vestor Re­spon­si­bil­ity Re­search Cen­ter In­sti­tute found that av­er­age ages for the lion’s share of S&P 500 board mem­bers range from 60.6 years to 64.4 years with lit­tle vari­a­tion. Per­haps un­sur­pris­ingly, com­pa­nies that have been pub­licly traded for more than 50 years have the least age-di­verse boards.

The prob­lem is that some boards at­tempt to be­come more di­verse by merely check­ing the box rather than seek­ing to change board­room cul­ture. We have seen ex­am­ples where a board point­edly searches for one or two “di­verse” can­di­dates in or­der to claim vic­tory in the fight for di­ver­si­fi­ca­tion, and then calls it a day. Other times, com­pa­nies will take ex­tra credit when a new board mem­ber be­longs to mul­ti­ple un­der­rep­re­sented groups—af­ter all, ap­point­ing a Latina, for ex­am­ple, means the board can claim to have both a per­son of color and a woman.

Boards that fail to make di­ver­sity a top pri­or­ity to­day are set­ting them­selves up to be to­mor­row’s tar­get of pub­lic out­rage—an out­rage that can cause sig­nif­i­cant rep­u­ta­tional and fi­nan­cial harm to the busi­ness. More

“Just 14% of board seats in the Amer­i­cas are held by women, up just slightly from 12% in 2015. The pro­por­tion of fe­male board chairs did not change dur­ing that time.”

im­por­tantly, a board with­out di­ver­sity misses out on the rich va­ri­ety of per­spec­tives and ideas that come from the in­clu­sion of in­di­vid­u­als who each bring some­thing unique to the board­room. Real, sus­tained di­ver­sity be­gins with chang­ing the pipeline of board can­di­dates and the way they are nom­i­nated and seated.

First, the board must iden­tify a search firm with a strong board prac­tice and a doc­u­mented track record of di­verse board place­ments. Don’t set­tle for as­sur­ances from a search firm; ask for place­ments and ref­er­ences. The board, not man­age­ment, should meet with the search firm to ex­plain its com­mit­ment to di­ver­sity and clearly share its ex­pec­ta­tions re­gard­ing the de­sired board can­di­date pro­file and can­di­date slate. Es­pe­cially in industries that his­tor­i­cally lack di­ver­sity, the board must think out­side the box in terms of qual­i­fi­ca­tions that would be deemed ac­cept­able to serve on that par­tic­u­lar board. What non-tra­di­tional ex­pe­ri­ence would be con­sid­ered valu­able? Are there po­ten­tial can­di­dates work­ing in re­lated industries who might bring some­thing new and use­ful to the con­ver­sa­tion? Th­ese are the types of ques­tions the board should be ask­ing both its mem­bers and the search firm.

Sec­ond, beyond the ini­tial goal-set­ting that must oc­cur with each and ev­ery board search, the board must also hold the search firm ac­count­able with re­spect to pro­duc­ing a di­verse slate of qual­i­fied can­di­dates. If the search firm pro­duces a can­di­date slate with ei­ther to­ken or no di­ver­sity at all af­ter com­mit­ting to pri­or­i­tiz­ing di­ver­sity, the board should not ac­cept any ex­cuses and ei­ther re­quire the firm to go back to the mar­ket or look for a new search firm im­me­di­ately.

Third, the board should make pub­lic its com­mit­ment to di­ver­sity—one that goes beyond a vague prom­ise to in­crease the num­ber of women and mi­nori­ties on the board in the fu­ture. In or­der to hold it­self ac­count­able for de­liv­er­ing on its di­ver­sity pledge, the board should also con­sider pub­lish­ing in­for­ma­tion on the num­ber of can­di­dates who were in­ter­viewed for each new seat, in­clud­ing a break­down by age, gen­der, race, and eth­nic­ity. Boards could also make pub­lic their re­la­tion­ship with and sup­port for groups that fo­cus on con­nect­ing women and other un­der­rep­re­sented pop­u­la­tions to board ser­vice op­por­tu­ni­ties.

Dis­ap­point­ingly, in­creased pub­lic aware­ness and damn­ing sta­tis­tics have not been enough to spur each and ev­ery board to cor­rect its lack of di­ver­sity. But the cul­tural shift and pub­lic back­lash against com­pa­nies that re­main over­whelm­ingly white and male is not go­ing away. Sooner or later, even the most parochial board­rooms in cor­po­rate Amer­ica will have no choice but to pay at­ten­tion. Boards that lead the way—those that take con­crete steps to­ward chang­ing the com­po­si­tion and cul­ture of their mem­ber­ship—will not only be do­ing what is right for the com­pany, but

“Sooner or later, even the most parochial board­rooms in cor­po­rate Amer­ica will have no choice but to pay at­ten­tion. Boards that lead the way will not only be do­ing what is right for the com­pany, but what is most re­ward­ing for the cor­po­rate bot­tom line.

what is most re­ward­ing for the cor­po­rate bot­tom line. Boards that fail to act will en­sure that sooner or later, their com­pa­nies will be left be­hind.

* Suzanne Folsom, a Board Direc­tor at Ad­vanced Me­tal­lur­gi­cal Group and at VELUXE, and the for­mer Gen­eral Coun­sel, Chief Com­pli­ance Of­fi­cer and SVP – Govern­ment Affairs at United States Steel. Deb­o­rah Ben-Canaan is a Part­ner at Ma­jor, Lind­sey & Africa, and leader of its Washington, D.C. In-House Prac­tice Group.

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