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Why Should My Company Care if Our Board Is Diverse?

Why Should My Company Care if Our Board Is Diverse?

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Q. Why should my company care about whether the board of directors is diverse? And how do I, as a diversity practitioner, help make that happen?

A. Board diversity has several benefits. It gives organizations new ideas and innovative solutions at the strategic level; it helps attain and retain the best talent; and it helps organizations market and protect the brand.

Most companies have a great deal of difficulty getting gender and racial/ethnic diversity on their boards, even though the talent pipeline from those groups is growing. While 60.4 percent of master’s degrees went to women two years ago, according to the National Center for Education Statistics, and more than 15 percent went to Blacks and Latinos, the Fortune 500 is very low in board diversity.

According to the Alliance for Board Diversity, 15.6 percent of the Fortune 500’s boards are women. The DiversityInc Top 50, in comparison, averages 23 percent and the DiversityInc Top 10 averages 30 percent. Only 12.7 percent of the Fortune 500’s boards are Black, Latino and Asian. The DiversityInc Top 10 and Top 50 are close to 30 percent.

SEC Commissioner Luis Aguilar echoes the connection between board diversity and business results in an interview with DiversityInc CEO Luke Visconti. Aguilar states that “companies with better performance seem to have more diverse boards.” A new report by the Committee for Economic Development (CED) contends that giving women a seat at the table and providing adequate talent development not only can deliver measurable business gains but is the key differentiator in future global success.

Jim Turley, global chairman and CEO of Ernst & Young, No. 6 in the DiversityInc Top 50, acknowledged the link between board diversity and company performance, stating: “We have focused on diversifying our board because we know it enables our firm to perform better.”

With the best available talent, boards are more likely to identify and select diverse senior leadership. DiversityInc Top 50 data also shows a positive correlation between diverse boards and diverse executive-management teams. According to the EEOC, national senior leadership in private industry is 11 percent Black, Latino and Asian and 28.2 percent women. In comparison, the DiversityInc Top 50’s senior leadership is 17.7 percent Black, Latino and Asian and 24.1 percent women. The DiversityInc Top 10’s executive management is even more diverse.

Diverse boards can ensure that contributions align with company and shareholder values related to diversity and inclusion. In “Are Political Donations That Conflict With Your Diversity Policy a Shareholder Issue?” NorthStar Asset Management’s Julie Goodridge and Christine Jantz show how corporate political contributions that violate company values risk the company’s good name and shareholder value.

Best Strategies to Diversify Your Board

Based on our data and sustainable results, we recommend the following approaches:

  1. Mandate diverse slates for every board opening.
  2. Do not look at the “usual suspects,” those same women, Blacks, Latinos and Asians you see on so many corporate boards. Look down a level or two to people with great ideas who may be younger or have not yet achieved your “qualifications.”
  3. Maintain clear communications between the board and your chief diversity officer so everyone understands diversity strategies and priorities. At 96 percent of DiversityInc Top 50 companies, the chief diversity officer presents directly to the board, up from 92 percent five years ago.

For more on board diversity and diversity in recruitment, view our Diversity Web Seminar on Recruitment: 5 Workforce-Diversity Strategies to Find, Engage & Retain Talent.

—Shane Nelson

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2 Comments

  • Luke,

    Your article ‘Why should my company care if our board is diverse?’ is excellent!

    It’s great to see industry leaders take a look at a major growing concern on a national level & place solid and actionable steps in place to ensure a diverse board/leadership team exists.

    There are far too many corporations who continue to spew diversity initiatives but rarely follow through and these are the ones reamin competitive and will cease to succeed.

    Industry leaders that are willing to take the risk and speak about this topic ought to be commended. They have made the realization, and connection, that being diverse brings forth many benefits. Such benefits include talent retention, decreased turnover, positive brand recognition, more profitability and a positive standing in an ever changing & growing global market.

    We all need to embrace, understand, appreciate and celebrate cultural diversity. This understanding will allow us to understand the communities(national and global segments)that we do business in.

    Cultural issues and impacts will be better understood when engagement is solicited. This will ultimately move us forward towards a balanced, equitable, and global position to find innovative business strategies and an increased understanding of those around us.

  • It’s about walking the walk while talking the talk. Diversity in directorship is the next level beyond diversity in the workforce or in management.

    If there is diversity at the lower levels, but the “boys club” remains at the top, it’s still just a modern variation of a 19th century plantation.

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