Corporate Board Diversity
Companies know that diversity in boards leads to improved decision-making and higher stakeholder involvement. It also fosters an environment that is more innovative. Yet, many are struggling to bring diversity into practice in their boardrooms. A variety of forces have been pushing boards towards greater diversity. These include protests and activism by women and people of color, including the Black Lives Matter movement; pressure from shareholders and other market players; and state legislation.
But despite these gains the composition of most boards is still not up to par with the total population of the United States. According to the latest Spencer Stuart study, white people still hold 84 percent of Fortune 500 board seats. The proportion of women, ethnic/racial minorities members and minorities on the board have not grown over the past five years.
As a result, a few institutions are beginning to step up the pressure on boards to promote diversity and to adopt policies that encourage it. CalPERS is the $330 billion pension fund that represents California public employees, has sent letters to 504 companies included in the Russell 3000 Index with low levels gender diversity on their board.
To increase diversity in the boardroom companies must expand their search beyond the traditional network of executive peers. They should also employ consultants to help them find new candidates. They should also remove the selection criteria and procedures that have hindered diversification of the board and adopt new best practices. They should also look into formal onboarding programs to help different directors become comfortable with the board’s culture and functioning.