Corporate Board Diversity
Companies know that diversity in boards contributes to improved decision-making and higher stakeholder engagement. It also fosters an environment that is more creative. Yet, many are struggling to bring diversity into practice in their boardrooms. A swarm of forces has been pushing boards toward greater diversity. There have been protests and activism by women and people of color, including the Black Lives Matter movement; pressure from shareholders and other market participants and legislation from the state.
However, despite these improvements, the makeup of most boards is still behind the overall population in the United States. In fact, according to a recent study conducted by Spencer Stuart, white individuals still hold 84 percent of Fortune 500’s board seats. In addition, the percentage of women and ethnic/racial minorities on the board has not grown significantly over the last five years.
As a result, some institutions are beginning to increase the pressure on boards to support diversity and adopt policies that support it. For instance, CalPERS, the $330 billion pension fund for California public employees has sent letters to 504 companies that are part of the Russell 3000 index with low levels of gender diversity on their boards.
To increase boardroom diversity, companies need to expand their search beyond the traditional network of executive peers. They should also employ consultants to identify new candidates. Additionally, they must eliminate selection criteria and processes that have hindered diversity on the board in the past, and develop new best practices. In addition, they should consider developing formal onboarding programs to assist directors from diverse backgrounds to become at ease with the board’s operations and culture.
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