Corporate Board Diversity
Companies know that diverse boards enhance decision-making, increase stakeholder engagement, and help create more innovative environments. Yet, many are struggling to ensure that diversity is a reality in their boardrooms. A swarm of forces have been pushing boards towards greater diversity. This includes protests and activism by women and people of color, like the Black Lives Matter movement; pressure from shareholders and other market participants; and state legislation.
However, despite these improvements however, the composition of many boards is still behind the general population of the United States. According to a recent study by Spencer Stuart, white individuals still hold 84 percent of the Fortune 500’s board seats. Furthermore, the number of minorities, ethnic or racial, women and other minorities on board has not increased significantly in the past five years.
As a result, a few institutions are beginning to increase the pressure on boards to support diversity and to adopt policies that encourage it. For instance, CalPERS, the $330 billion pension fund for California public employees has sent letters to 504 companies that are part of the Russell 3000 index with low levels of gender diversity on their boards.
To increase diversity on the board To encourage diversity in the boardroom, companies must diversify their search sources beyond the traditional networks of executive colleagues and recruit consultants outside of the company to find new candidates. They should also eliminate selection criteria and procedures which have hindered diversification of the board in the past and create new best practices. Additionally, they should think about creating formal onboarding programs to aid diverse directors in becoming fully comfortable with the board’s work and the culture.