Board Of Directors and Diversity

Diversity in the business and nonprofit sector should be more than just a
buzzword. It’s important that people of all backgrounds and identities are
invited to and have a seat at the table. Diversity means a lot of things – it’s not
about just any one demographic factor. Diversity is about inclusion, about
making sure that people of all genders, disabilities, races, colors, religions,
sexual orientations, creeds, or any other criterion find themselves represented
amongst your board.

Diversity in 2022 is about intentionally including those who have found

themselves left out in the past. This is not due to any faults of their own, or
being found less worthy, but about the differences in access that made it much
more difficult to reach the top. Not to mention that the financial investors and
much of the public at large are demanding more diversity in boards and
leadership. 2022 is the year that the field begins to level in terms of leadership
diversity. At least, more institutions and organizations are beginning to take a
stand toward prioritizing and taking note of the benefits of board diversity.

Here are a few businesses that have highlighted the importance of having a
diverse board of directors:

● Merck
○ The former CEO of Merck, Ken Frazier, was one of America’s
very few African American CEOs in Fortune 500 companies.
The company’s board in 2021 was relatively diverse with 21%
 African American directors and 42% women. Frazier noted that
“taking the time to recognize and address challenges from a
systems level is a crucial first step for any leader interested in
boosting their board of directors diversity.”
● Best Buy
○ In 2012, there was only one woman on Best Buy’s board of
directors. It took a new CEO, focused on inclusion, to increase
that number to five women and four people of color on a board
with eleven seats. Best Buy’s CEO is currently Corie Barry, who
stated that it was time to “hold [them]selves accountable for this
work [they’ve] promised to do” in regards to diversifying their
organization.
● HP
○ The board of directors at HP is one of the most diverse in the
entire tech industry, with 58% minorities and 42% women. HP’s
CEO Enrique Lorez published a LinkedIn article stating that
“building a more diverse board is just a start. Business leaders
need to closely examine all aspects of their
organizations—from the C-Suite to the frontline, to the partners
they are collaborating with, and the supply chains they depend
on—to make sure their companies and operations reflect the
markets and communities they serve.”
● Starbucks
○ In 2017, Starbucks became one of the top companies with a
diverse board of directors in the country. In the years since
then, they have followed on developing their board to more
closely reflect the people they serve as one of the most
successful coffee chains in the world. In September of 2020,
their board was 46% people of color and 39% female.
Dr. Jason Wingard, commenting on the above boards and diversity on boards
in the U.S. as a whole, stated that “…diverse board rooms — do not magically
appear. Creating a balanced board of directors requires intention and
accountability. It requires time and commitment. It requires transparency and
hard work. It requires investment, both literally and figuratively, from those at
the very top. And, above all, it requires the abandonment of tired excuses.”

What Is Board Diversity In Corporate

Governance?
The importance of board diversity has been evident for some time, but it is
only now beginning to trend towards improvement. Many who have never had
to wonder “What is board diversity in corporate governance?” may be unsure
as to where to start when looking to diversify their own boards. Although there
is much to discuss when diversity is concerned, the simple matter of diversity
in corporate governance is the cultivation of a broad spectrum of demographic
characteristics and identities within the boardroom.

Board diversity and firm performance may be linked, with many industry
professionals agreeing that diversity is the way of the future and should be
embraced. While that may be true, there are both advantages and
disadvantages of board diversity. Although the disadvantages may be better
described as a “side-effect” due to the fact that they are not purely negative
results.

Advantages:
● Board diversity creates more effective decision-making.
○ Diversity amongst a board protects against a herd mentality
and fosters more free thought and spirited discussion. A truly
diverse board may not always agree on the best course of
action – that respectful conflict fosters discussion and
problem-solving, possibly resulting in a stronger, more holistic
solution than what would have occurred in an echo chamber.
● Diverse leadership in boards creates a larger network of support and
better utilization of resources.
○ This is important in talent recruitment and development,
building business relationships, and selling products. When the
requirements for board leadership are re-examined, there may
be more qualified and better-suited candidates who previously
were not able to be discovered due to systemic factors at play.
● Diversity can provide key customer insights and improve brand loyalty.
○ Minorities make up nearly 40% of the United States population,
and yet they are not proportionally represented in board
leadership at all. Businesses and nonprofits with diverse boards
appeal to more diverse populations and are better able to map
customer experiences, enabling increased sales overall.
While the benefits of board diversity are many, creating an inclusive board is
not without its challenges. A few of the hurdles to creating and keeping a
diverse board might be:

● The backlash from those opposed to diversity overall.

○ While this is one of those that can’t be called purely a
“disadvantage”, it is a business inconvenience to have your
diversity initiatives challenged. For example, it was recently
reported that legal action has begun against Starbucks for its
inclusion policies. While individuals who resent and repress
diversity are typically enemies of progress and inclusion overall,
boards that are seeking to diversify intentionally may face a
similar challenge.
● Potential increased friction amongst board members
○ As previously mentioned in the advantages column, a diverse
board may not always agree due to differences in their
backgrounds and circumstances. While challenging in the
beginning, conflict in the boardroom should result in a stronger,
healthier solution that serves more people as a whole.
What Is The Importance Of Diversity?
When asking, “What is board diversity?” there is much to consider. While
gender diversity on the board of directors is growing, as is racial diversity,
there are many elements of intersectionality to be discussed. The importance
of diversity in the board of directors is paramount to the advantages and
disadvantages of board diversity. While having a diverse and inclusive board
is simply the right thing to do, there are also significant benefits that must be
taken into account.

For example, companies that are led by female CEOS are less likely to face
discrimination and harassment lawsuits than those that are led by men. The
importance of the board of directors being representative of the communities
they serve is especially important in nonprofit organizations, where it can be
difficult to gain the trust of the people they most want to impact. Inclusion is for
boards of every kind, not just corporate.

It is also important when striving for diversity in boards to invest in your

diverse board members and value their contributions. One of the challenges
of board diversification is that it can, unfortunately, be misconstrued as
“tokenism.” It’s a common claim of those against diversity overall, but can be
remedied by thorough and intentional planning to provide equity in the
boardroom and in your organization as a whole.

Board Diversity In The Real World

While Merck, HP, Best Buy, and Starbucks are exemplary board diversity
examples, they also showcase the advantages and disadvantages of board
diversity. They have robust, active boards that seek to advance their
organization and are doing it well. However, as we’ve seen in the case with
Starbucks, they also face challenges directly tied to diversity and inclusion
efforts.

In a way, the pushbacks against inclusion efforts also answer the question –
why is board diversity important? The United States is a diverse country, and
in spite of that diversity, most board members are white men. This means that
much of the influence and control in our society is held by that demographic.
Board diversity means that influence is redistributed amongst a more
representative population, possibly changing the tide on how a business is
operated or who it chooses to prioritize.

Frequently cited examples of board diversity theory include three different

levels – the individual, the board, and the firm. To break it down even further,
these three levels are examined under multiple other different theories,
although the two most frequently discussed are the resource dependence
theory and agency theory. The resource dependence theory proposes that a
board of directors serves four purposes to an organization – advisory &
counseling that serves to propel the organization, information regarding the
organization’s position relative to the socio-economic environment it exists in,
and a pathway or network for elevating the organization’s status, and
legitimacy as an organization. Individuals seeking to diversify their board
within the framework of this theory might argue that by diversifying their board,
they now have access to a more diverse pool of resources, amongst other
benefits.

The agency theory is one that argues that a more diverse board improves firm
performance. Studies of agency theory suggest that an imperfect relationship
between organization leaders and their shareholders or consumers exists,
and a diverse board can better improve the relationship between those parties
whilst ensuring that the interests of all are met.
Alliance For Board Diversity
The need for board diversity and inclusion has existed since the invention of
boards, but experts say that those in leadership positions need a push to
pursue action. That’s why organizations like the Alliance for Board Diversity
and Board Diversity Action Alliance exist – to give those organizations a push.
These organizations seek to increase board diversity disclosure to better
represent the number of minority members serving in board leadership. Since
many organizations have proven to need a push when it comes to diversity
and inclusion, some governments have passed mandates regarding diversity
in board leadership. Board diversity state laws most notably come from
California, in an attempt to increase the gender diversity on boards by
mandating that all publicly traded corporations should have at least one
woman on their board by 2019 and two or more by 2020.

However, it was struck down and prevented from implementation in 2022.

Washington also attempted to pass a similar act, seeking to get more
organizations to take advantage of the benefits of female board members.
Some lawyers advise that state governments should instead focus on board
diversity disclosure laws rather than mandates, which would make board
diversity representation reporting mandatory and public. In that case, the
public would be able to make a more informed choice about where to work
and what companies to support financially.

What About Nonprofit Board Diversity?

Board diversity isn’t only important in the corporate sector, it’s important in
nonprofits, too. Nonprofit board diversity is something that seems to be
frequently discussed, but like corporate board diversity, is slow to change.
Nonprofit board diversity statistics can at times be more difficult to find than
those of their corporate cousins – something that disclosure laws may or may
not change.

If your organization would like to make a difference in raising awareness

about diversity and inclusion in nonprofits, consider having your board fill out a
board diversity questionnaire. As stated previously, public disclosure of board
diversity can make a difference in the support and success of an organization,
which can be a motivator for promoting diversity and inclusion. Additionally,
the types of information collected by a questionnaire may remind your board
that diversity and inclusion are about more than gender and race.

If your board is really committed to overcoming disparity in diversity, consider

forming a diversity and inclusion board committee. This committee could help
widen the network of board candidates, increasing diversity on the board,
which could compound into more diversity, and bring all the benefits of
inclusion along with it. When it comes to diversity and inclusion, nonprofits
have the same responsibility to progress that corporate organizations do. In
many instances, promoting diversity and inclusion directly relates to the
mission of a nonprofit organization.

Boardable is here to partner with you and your organization. Follow along with
our resource center where we provide educational materials to set your board
up for success.