Diversity, Equity, & Inclusion at the Board Level
 

Much has been written about diversity—or the lack of it—on corporate and nonprofit boards. For the past decade, the topic has been regularly highlighted in the business media and has roiled many a board room conversation. But deaths of Black citizens at the hands of police in 2020’s long, hot, plague-ridden summer brought systemic racism in American society into sharp relief. As a result, Boards are engaging in vigorous diversity discussions and countless surveys indicate that boards are now taking diversity much more seriously.

Surveys are one indication, while conversations in the confidentiality of the board room can be quite another. To find out what diversity means to board members, how serious their intentions are, what has stymied board diversity, and how those factors can be overcome, we spoke with eight veteran board members. All have experience serving on multiple boards—some corporate, some nonprofit. Our panel was composed of men and women, black, white, and Hispanic individuals. They were generous and candid in their observations. Their only stipulation was that their thoughts and opinions not be directly attributed.
 

Author Nat Sutton speaks about diversity and building a pipeline for more diverse boards.

Defining Diversity

To many, diversity is as simple as black and white, male and female. Boards once dominated by white men of a certain age, are now populated by both men and women, with a slowly growing number of people of color joining the ranks of corporate and nonprofit governors. But as several of those we interviewed pointed out, there are other factors that define diversity in the minds of board members—“I can’t remember the last time we had a board meeting where diversity wasn’t raised. To be honest, the corporate board I sit on really struggles with what diversity actually is,” said one interviewee. “The entire senior management is white and male—I think there may be one woman on the Executive Council. The events of the summer really brought diversity in terms of race to their attention, but I don’t think they really see diversity beyond that.”



On the other hand, another participant told us, “At this point I believe all boards, or most, are deeply immersed in thinking about how they can better represent diversity, not just in the traditional sense, but even general diversity of thought and experience.” Another commented, “I think every board has its own definition of diversity—for some it is gender, race, and ethnicity,” said a third. “But beyond that, depending on the organization the board is governing and the constituencies it serves, diversity can also mean international perspective, youth, diversity by field and level of training, or even gender identification or people with disabilities. To a great extent true diversity on a board is directly related to the composition of the population the organization serves.”

Along with race, ethnicity, and gender, age has become another focal point for diversity. Surveys consistently show that middle to late 50’s is the general age range for new board members; board service into late 70’s and early 80’s is common. Board members in their 40 are rare and those younger than 40 are scarce.

Despite how inclusive the definition of diversity can be in a philosophical conversation, our interviewees posited that for boards they know well, race and gender are where the current conversations are primarily centered. “Certainly for the boards I sit on, George Floyd marked an inflection point about how we think about racial integration in the United States and the opportunities available to African-Americans,” one board member said. “If you look at the number of boards that added African-Americans this year, you’d be astounded. The board I sit on is one of them, but I can only speak for my own board.”

Starting the Conversation

Boards have been discussing diversity—some relatively recently, others for some time, and some more seriously than others. But whether academic discussions result in true steps toward opening boards to members of underrepresented communities remains to be seen. The disparity in board attitudes to diversity were clear in comments by our interviewees—“Going back four years, when I was first on the board, there were rumblings about diversity. A bunch of old white guys were sitting around the table, and the answer was, oh, no, we need to find the best candidates- we’re not going to worry about that. Then this summer that attitude became unacceptable,” said one veteran corporate board member.

“I’d be very surprised to hear that the issue hasn’t come up in most if not all board rooms—certainly in the Fortune 500 over the last several years,” said another.

“I think diversity is much more at the forefront today than I have ever seen it. In the last six to nine months, it has really been a game changer,” said a third.

“Diversity is a topic of conversation at every meeting of our board and has been for some time,” said another. “There is now genuine interest in how to diversify the board, bring in broader representation and fresh ideas.”

“I’m on the board of a relatively small company. We’ve gone through three board searches recently, and the issue of diversity has come up. It’s been clumsy and awkward,” commented another. With or without long running discussions, the growth in number of seats held by minorities, particularly Blacks and Hispanics, has proceeded at a glacial pace. According to Institutional Shareholder Services, a proxy adviser, the boards of about two-thirds of companies listed in the Russell 3000 index lacked a Black director last year, a miniscule improvement over seventy percent that lacked at least one Black director the year before.

“When Rodney King was beaten by police in the 1990s, there was discussion in corporate America about the need for what we now call diversity. Very little came of it. But George Floyd was different,” said a corporate board member. “It was vivid. Millions of people saw a compliant Black man die with a policeman’s knee on his neck. It awakened people to systemic racism in a way they hadn’t seen before. And corporate America got the message.”

The majority of those we interviewed felt that boards are genuinely committed to increasing minority representation. But one opined, “We really need to talk about it more specifically. We need to consider why we are not moving more quickly toward greater diversity. “There are a lot of people who are genuinely committed to diversity, but without concrete action all this talk takes on an aspect of lip service. The topic is trendy. People want to be a part of the conversation, but far fewer are actively engaged in bringing it about.”

Nascent moves toward legislating diversity may give further impetus to more boards. In December, Nasdaq proposed a new rule that would mandate a minimum of one female and one racial minority or person who identifies as gay, lesbian, queer, trans or bisexual on the board of every listed company. The proposal awaits approval by the Securities and Exchange Commission. In 2018, California passed legislation mandating that any public company headquartered in the state must have a least one woman on its board.



“Europe is much more active than in the US in terms of legislating diversity” said one interview participant. “They’ve done a good bit of it over there so you’d think that progressive companies in general would want to respond before they got legislated into it.”

“Regardless of whether we diversify our boards on our own accord or it’s legislated, we’re going to have to rethink the criteria we use for board candidates.”

The Female Factor

Achieving genuine diversity has been difficult for a number of reasons, but in years past it was made somewhat easier for boards by keeping the scope of diversity narrow. “If you have a Black woman on the board you can tick two (diversity) boxes. Some boards find that irresistibly attractive,” said one board member.

Several people acknowledged that gender diversity initially was sufficient for some boards. As diversity became a hot topic, CEOs with traditional attitudes about keeping business allies on their boards—allies who were, by definition, white, male and of a certain age –began to feel that heat.

With affirmative action slowly changing the composition of the workforce and women rising in the management ranks, boards looked to women to provide some embryonic diversity. Often rising white female executives shared similar social, educational, economic, and racial backgrounds with traditional members.

“Women were making headway faster in the executive ranks than Blacks or Hispanics,” said one interviewee. Women were underrepresented in the boardrooms, so bringing on a white female was a pretty easy pick.”

“It was more difficult to appoint a Black or Hispanic male, who didn’t travel in the ‘right’ circles. They were an unknown factor. A board not only needs people with specific skills, to be effective, it also has to be cohesive, collaborative, and collegial. There was a cultural aspect that came into play,” said another.

“It is important for boards to have a coherence and a sense of community. That doesn’t mean that people of color cannot successfully assimilate into a board, but a woman from a similar background was often a surer fit.”

But even for women whose work and educational backgrounds are similar to those of the white male governors with whom they served, the clubby, white, male dominated board can leave women, and other diversity members feeling like outsiders.

“If you look at the overlap of the Fortune 500 boards, all these guys go to the Business Roundtable meetings. They bump into each other all the time. It is a club, they’re a very elite club. They take the Gulfstream down to Boca Raton in February for a meeting. They play golf together and talk business. It isn’t an environment that makes most female executives feel comfortable,” observed one veteran director.

“In terms of the boards I serve on and the CEOs I know, today there really is a genuine concern about diversity beyond gender,” said one interviewee. “Affirmative action has worked very well for women in the workplace, but not as well for men of color. Most CEOs know a lot of successful women. In terms of racial diversity, how many white CEOs have Black friends?”

Another said, “There has been an emphasis globally on providing more business opportunities for women. Black and Hispanic men are probably at minimum a decade behind, at least in terms of numbers.”

“I think that is getting better. I think we have begun to get beyond the token phase and get into sizeable numbers of truly diverse people. A board isn’t going to be considered a really diverse board if seventy percent of the seats are held by white men and women,” said an interviewee.

Roadblocks to Board Diversity

Even when motivation to diversify is genuine, there are still barriers that can stymie even the most committed board.

“Boards are under all sorts of constraints—how big should the board be? What are the qualifications we need? Do we need to change the qualifications because there aren’t enough diverse candidates available who fit the criteria we’ve used for the last 10 years? “one interviewee asked.

Indeed, barriers to diversity often result from hide-bound attitudes about the skills needed and where well-qualified candidates can be found. This is particularly true when CEOs rely on themselves, their boards, and their colleagues to identify suitable board candidates. Another obstacle is simply a function of time—“Boards tend to be relatively small and seats don’t come open that often,” said one director. “That means that unless you are willing to increase the number of seats on the board, you are limited in how fast you can diversity your board.” On average, corporate boards range from 3 to 31 members. Some analysts feel 7 to 10 members is the optimum size. Board terms average 3 years, but on many boards the term is longer and in some instances, there is no term limit. Most boards with term limits allow members to serve at least one additional term.

Some of our board sources said CEOs and boards are often reluctant to add seats for fear of making the board unwieldy, although in many cases over the past few years, that has been a method used to hasten diversity. Another important issue dampening steps toward diversifying boards is the fundamental one of supply and demand for candidates deemed acceptable to the CEO and the board—“Many times, particularly boards of large, high profile companies are looking for the ‘big names’ to serve,” noted one director. “Given the severely limited number of minorities in the C-suites of Fortune 500 companies, the same names come up again and again. Most people are only willing to serve on one corporate board at a time. In essence, we’re all competing for the same, very limited pool of people.”

“Everybody’s pursuing the same candidates. The competition for ‘names’ is unbelievable,” said another. “If you’re not a very sexy company, like Google or Facebook, you’re not going to be able to compete for this limited set of talent with the big names.”

The scarcity of minority candidates is further exacerbated by the fact that many boards will only consider candidates who have board experience. It is the “we can’t hire you because you don’t have experience- the how do I get experience if you won’t hire me” conundrum.

“I think that’s been a real challenge, particularly in recruiting racial and ethnic minorities. My personal opinion is that diversity has been and continues to be a candidate sourcing challenge,“ said another interviewee.

“We only broke through and made our board more diverse when we were willing to go below the C-Suite and look at up-and-coming talent without board experience. If you aren’t willing to do that, lack of diversity will continue to be a self-fulfilling prophecy.”



Another issue that came to the fore in our conversations was the lack of any real training ground for talented minority executives that would help them assimilate more easily into a board setting. “Young people generally don’t graduate from college with a burning ambition to one day be a member of a corporate board. I don’t know of any college courses that specifically prepare students for board service as their careers advance. I’m not sure that many business school graduates fully understand how a board works, what it does, and the role it plays in a company’s success,” an interviewee offered.

How to Build a Diversified Board

Multiple studies through the years have shown that public company boards with racial, ethnic and gender diversity fare better financially than those that are not diverse. This alone should spur boards to diversify their membership. The first step, according to those we interviewed, is to take a broader view of the traditional board qualifications. If you want a board with true diversity, the CEO and board members must look at the qualification issue more broadly.

Indeed, late last year renowned former AMEX CEO, Kenneth Chenault, blasted the “pipeline” defense often used by CEOs for lack of board diversity as a “cop out.” At an Economic Club of New York event, Chenault said of CEO’s, “You’re the one who controls what’s put into the pipeline. The reality is that, again, if you simply take the position that the status quo approach and processes are the ones that you’re going to follow, then you’re not going to make progress.”

Our interview participants agree—“There are diverse executives in smaller companies who could step up to Fortune 500 boards seamlessly, but they are often overlooked,” said one interviewee. “You need to look beyond your friends and the contacts of the board’s nominating committee. Maybe you need a search firm to find those people. They are out there. And you need to look at their qualifications in terms of what they bring to the board, not on what you’ve always sought. You have to be more open-minded.”

Another pointed out that there is a wealth of creative, successful, strategic, diverse talent in smaller, more entrepreneurial companies, people who can bring new viewpoints, inventive ideas, and nimbleness to the board room. A third agreed that boards with a commitment to diversify need to broaden perspectives beyond the traditional roles—“It used to be that a strong background in finance was table stakes for board selection. Now we need to look beyond risk and finance if we want to diversify,” said an interviewee whose board has made significant strides toward real diversity.



“A board, particularly a consumer products company, might really benefit strategically from someone who has real insights into emerging markets or social responsibility or IT and IT security, which is really critical to every company today.”

“In terms of technology, a company might benefit enormously by having someone who not only relates to the technology itself, but who sees it through the eyes of the consumer. Generally, executives in their 60s are not those people. People who are in their 30s and 40s are.”

“Our board found a diverse woman in her early 40s who has the maturity and gravitas for board service. She was a non-traditional board member but she has really brought a lot to the board. She wasn’t a CEO or in the C-suite, but has a very significant position.

“If you’re willing to look at younger candidates below the C-Suite, it opens up a world of outstanding candidates— people with different life experiences, different points of view and valuable skills.” Another interviewee agreed, “We only broke through (the diversity roadblock) when we were willing to go below the C-suite and look at up-and-coming talent- maybe one level below the C- suite, maybe even two. Board service shouldn’t necessarily be based on whether you have a C- suite title, but what you bring strategically to the board.”

Developing the Pipeline

Our interviewees offered suggestions on how a board can help develop a sustainable pipeline of qualified, diverse board candidates. Some are long-term strategies, others can be implemented immediately:

• Mentorship—As the workforce has become more diverse, there are many opportunities for C-suite executives, to identify diverse talent and help them develop into the kind of strategic executives boards seek. Mentoring helps a company make the most of its talent and prepares outstanding minority talent to take their places on boards.
• Support and build relationship incubators for diversity talent such as Historically Black Colleges and Universities (HBCUs), and other academic institutions that serve diverse— Blacks, Hispanics, Asians, etc.— populations and offer strong business programs. These institutions know where their successful alumni are. In addition, their Deans and senior executives may be good sources for board referrals or may themselves be qualified board candidates.
• Build strong relationships with, and join, diverse affinity talent organizations such as African American Federal Executive Association; Asian Women in Business, Corporate Counsel— Women of Color, Executive Leadership Council, The Harvard Business School African American Alumni Association (HBSAAA); Hispanic Association for Corporate Responsibility; Hispanic National Bar Association (HNBA), etc.
• If you consider working with search firms, seek firms that have strong reputations for diversity placements, particularly in the C-suite and senior management, and have a dedicated diversity, equity, and inclusion practice.
• Work consistently to open the minds of board members and the CEO to “unconventional” candidates—diverse executives from smaller and entrepreneurial companies.
• Onboarding—For any candidate, but particularly for anyone who have never served on a board, a thoughtful approach to onboarding is critical. Several of our interviewees noted that on a formal or informal way, their board assigns a veteran board member to mentor each new person, making sure they connect with other board members, understand the culture of the board, and the way the board operates.