The Importance of Diversity on a Board of Directors
Date: February 1, 2021
In 2019, more than a third of S&P 500 firms had no Black board member, and Black directors comprised only 4% of Russell 3000 Index board members. A recent issue of Harvard Business Review reported a study of U.S. boards that found that barriers blocking Black directors include recruitment and onboarding and access to board leadership roles. Another hurdle is the dynamics in which contributions of Black directors, particularly women, are ignored or undermined.
That same study also points to the substantial benefits of a diverse board, including diversity of perspectives and encouragement of diversity throughout the organization.
This study comes amid a recent NASDAQ proposal to the U.S. Securities and Exchange Commission to adopt new listing rules regarding board diversity and disclosures.
NASDAQ’s proposal calls for companies trading on its platform to publicly disclose statistics on board diversity. The proposal includes a requirement that companies on its platform have at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+. With this proposal, NASDAQ hopes to push companies toward diversity and inclusion in their corporate governance.
Last summer, Alexis Ohanian, co-founder of Reddit and the husband of tennis star Serena Williams, stepped down from his 15-year position on the board of directors to allow a Black candidate to fill his seat. His actions sent a strong statement about the importance of diversity and the importance of Black representation in these high-level positions.
With a constantly evolving economy and a diverse consumer base, companies should strive for corporate governance that adequately represents their markets. As companies face complex decisions affecting growth and risk management, a diverse board of directors can be a source of corporate strength. A diverse board can do much more than “check the box.” It can expand the knowledge, experience and insight that go into a company’s decision-making, and it can ultimately lead to both an improved corporate culture and corporate growth.
Companies should aim for multi-dimensional diversity that includes variables, such as race, ethnicity, sexual orientation, age, gender, religion, professional and personal experiences, and skill sets.
Several studies have found a correlation between a diverse board and improvements in financial performance and company governance.
Diverse boards and directors bring a valuable range of outlooks, opinions and suggestions regarding decision-making and problem-solving. More dynamic approaches help to deconstruct tight-knit or narrow decision-making processes to which companies might be accustomed, leading to improved and more inclusive corporate governance.
A board of directors with members from different lifestyles can offer more progressive insights and approaches that otherwise might not have been accounted for. Growth that can follow from diversity and inclusion can contribute both to stronger companies and a stronger economy.
There is corporate value in maintaining an intentional and continuous commitment to diversity by ensuring that boards are representative of the society they serve.
But what about those who say that differing opinions and outlooks could lead to extended discourse, conflict and even hostility in a company?
A diverse board of directors can still be amicable and work in a collegial setting. Differing outlooks do not have to result in discord. It can serve as an opportunity for expanding viewpoints and collectively coming together in the decision-making process for the company’s benefit.
A board with diverse professional and personal backgrounds can actually bring added conflict resolution experience to help resolve disagreements that may arise. A company may be in a better position to tackle difficult issues if its board members have varying viewpoints that allow for robust discussions.
With diversity at the forefront, companies would do well to take an expansive and detailed look into their directors and diversity plans and initiatives. Board diversity can open a path to more inclusive and collective corporate governance, positively impact a company’s culture, and help keep pace with an evolving market and consumer base.
It is up to each company to take the initiative to develop a more inclusive board and workplace.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.