Corporate Board Diversity
Companies understand that diversity on boards can lead to better decision-making and increased stakeholder engagement. It also creates a more innovative environment. But many still struggle to ensure that diversity is a reality in their boardrooms. A confluence forces have been pushing boards towards more diversity: activism by women and peoples of color, like the Black Lives Matter Movement; pressure from investors and other market participants; state legislation.
But, despite these gains, the makeup of most boards is still lagging behind the overall population in the United States. In fact, according to a recent study by Spencer Stuart, white individuals still hold 84 percent of Fortune 500’s board seats. The proportion of women, ethnic/racial minorities members, and minorities on the board has not increased over the last five years.
As a consequence, certain institutions are beginning to increase the pressure on boards to encourage diversity and adopt policies that encourage it. CalPERS, a $330 billion pension fund which represents California public employees, recently sent letters to 504 companies that are listed in the board.international Russell 3000 Index with low levels gender diversity on their boards.
To increase diversity in the boardroom, companies must expand their search beyond the traditional network of executive peers. They should also engage consultants to find new applicants. Additionally, they must eliminate selection criteria and processes that have hindered diversity on the board in the past, and establish new best practices. They should also consider formal onboarding programs to help diverse directors get acclimated to the culture of the board and its functioning.