Does Diversity in the Boardroom Matter?

Source: Deloitte

Increasingly, companies are recognizing that the skills they need to fill out board expertise go beyond what retired CEOs might be able to contribute. According to the Spencer Stuart 2016 Board Index, only 19% of new independent directors at S&P 500 companies are active CEOs, chairs, presidents and COOs, compared with 49% in 1998.

Boards are prioritizing specificity of skills vs. a high-profile CEO role. “The ultimate responsibility of the board is to skate where the puck is going,” says Steve Klemash, Ernst & Young partner and director of EY’s Center for Board Matters.

The complex challenges companies face today are leading boards to seek specific finance, digital, cybersecurity, marketing, social media and global experience. That’s where executives lower down in the organization can represent some low hanging fruit, he notes. “There are plenty of quality women and ethnic minorities who have been coming up the ranks who have benefitted from more open-minded organizations. There are plenty of SVPs who have varied skillsets. The only one they’re really missing is that first board, but you can coach them up.”

“Governance is a teachable skill,” agrees Cholmondeley. “I can teach somebody to be a board member. But I can’t teach somebody cyber. I can’t teach them the depth of the 10, 20 or even five years of functional expertise they need to bring. So instead of worrying about whether a person has been on a board before, they ought to be looking at, does this person bring the emerging functional skillset that we need?”

Given all the liability issues for directors today, boards may also be skittish about uncharted territory, says Brown. “It’s really challenging to ask boards to start using a process today that they haven’t used before.” But a host of talent firms and universities now offer robust governance training to help ready new directors for board service.

4) Problem: Difficulty Attracting Top Candidates. “The companies that have that challenge are the small to mid-cap public companies and private companies,” says Brown. “They just aren’t known.”

Solution: Those that lack both the marquee brand name and the budget to do a pricey search still have options. First, be willing to reach down further into successful company ranks to find up-and-comers who have not had board experience, but who have expertise specific to your industry or near-term expansion goals. Look to successful entrepreneurs or CEOs of private companies, who can also offer valuable insight and expertise, particularly related to rapid growth. Tap the networks of organizations such as Athena Alliance, Catalyst and the Executive Leadership Council, among others.

5) Problem: Slow Turnover. With no tenure limits, and the average director term at roughly 10 years, board positions for independent directors simply don’t come open up that often. Last year, the number of new independent directors declined slightly, to 345 from 376 in 2015, according to Spencer Stuart’s annual study. Even when a board member has finished serving a term, the company may see a greater advantage to retention than trying to get someone new up to speed. At theBoardlist, a Silicon Valley talent marketplace designed to match highly qualified women candidates with tech board opportunities, a dearth of open seats has been a barrier.

“Business leaders have been incredibly receptive to the message,” says Lesley Grossblatt, COO of theBoardlist. “They say, ‘That’s fantastic, but unfortunately, no one is leaving our board.’”

Solution: Consider adding a board member. It may not work for every company, but for those whose directors are already swamped with unfinished tasks, it’s a good time to start thinking outside the box, says Klemash. “There isn’t an audit committee chair out there who wouldn’t say he or she is overwhelmed.” Given that, there may be an opportunity to solve several challenges simultaneously by adding a director seat and filling it with a minority or female candidate.

To be sure, U.S. company boardrooms are less diverse than those in Norway, Sweden, France and others that have legislated diversity ratios. But there is clear movement toward achieving parity. “I don’t have a crystal ball,” says Mel Lagomasino, CEO and managing partner of the financial advisory firm she founded, WE Family Offices, and a board member at both Coca-Cola and Disney. “But I do think one of the really good things out there is millennials and how they think.”

Gen-Y prioritizes family and work-life balance more than the previous generation, she says, which may lead to changes that enable women to achieve the same rates of ascension in corporate America as their male counterparts have. “As they start to come on boards, I think they’ll have a positive influence on the future of companies. So I kick the ball forward to the next generation of leaders.”

Read more: PENN MUTUAL: Diversity-Driven Success