Creating Diverse and Inclusive Boards

This article on creating diverse and inclusive boards is an abbreviated version of a research report prepared for a Kindred member by Kindred Concierge. Concierge is our on-demand research and insights team that helps our members get the data and information they need to navigate complex decision-making within their organizations. To learn more about the Kindred experience and member benefits, apply here. For existing members, log in to the member portal and maximize your Kindred experience through Concierge today.

The expectation for today’s nonprofit and for-profit organizations is that their boards will be diverse and inclusive. 

Earlier this month, the Securities and Exchange Commission approved a proposal from Nasdaq to improve gender, racial, and LGBTQ+ diversity among its listed companies. The stock exchange’s new listing standards require companies to have at least two diverse board members — one who identifies as female and one who identifies as an underrepresented minority or LGBTQ+. Companies that do not meet these standards will have to explain why in writing. Additionally, companies must share the diversity breakdown of their boards.

The new listing standards will bring hundreds of corporations closer to ensuring their boards are inclusive and diverse. The transparency will also bring much-needed accountability as companies work to meet these requirements.

Egon Zehnder’s 2020 Global Board Diversity Tracker shares some telling statistics on the state of board diversity. According to the report, women hold only 23.3% of board positions globally. In 2020, only 4% of new board-appointed directors were female. Of the FTSE 350 companies analyzed, 59% had no ethnic diversity on their boards; only 15 directors of color held an executive role. Additionally, out of 5,000 board seats in the Fortune 500, only 24 openly LGBTQ+ directors hold board leadership roles, and only two were LGBTQ+ directors of color. 

Diverse experiences and perspectives in the boardroom are critical for building better company governance. And, as the data shows, there is much room for improvement when it comes to creating diverse and inclusive boards. 

The Case for Diverse and Inclusive Boards

Studies have long shown that diversity and inclusion among teams lead to better business outcomes. For instance, 2018 research from Deloitte indicated that compared to their counterparts, diverse and inclusive teams are:

  • Twice as likely to meet or exceed financial targets
  • Three times as likely to be high performing
  • Six times more likely to be innovative and agile
  • Eight times more likely to achieve a better business outcome

In addition, inclusive leadership and performance led to a 70% increase in experiences of belonging, psychological safety, and inspiration. When leaders were inclusive, survey respondents reported positive changes in team performance, including a 20% increase in decision-making quality and a 29% increase in team collaboration. 

Beyond the statistics, the Harvard Law School Forum on Corporate Governance suggests that governance provides a framework for organizational practices, sustained growth, and managing risk, all of which renders the role of the board essential. A board’s culture can impact their effectiveness by influencing how directors and management interact and how decisions get made in the boardroom. From the board’s culture comes the potential for an organization’s long-term success, as well as a competitive edge. 

Increasing board diversity isn’t just an endeavor to check a box on governance requirements. Instead, company leaders — and board members themselves — must be intentional about increasing diverse representation on boards. 

Suggestions for Creating Diverse and Inclusive Boards

Leaders can change their board structure when committing to developing and sustaining a more inclusive board. Kellogg Insight recommends the following action steps to help leaders get started:

  • Reassess board goals and selection criteria. This enterprise includes considering different forms of expertise, functional roles, and other factors unique to the organization. The board should also reflect the communities and individuals an organization serves.
  • Network beyond the existing board. Recruit and find potential nominees from a wide range of stakeholders. Keep in mind that recruiting board members or expanding boards requires letting go of one’s sense of ego and fragility.
  • Create space for members to contribute meaningfully and equally. To create an inclusive environment, the board should not expect one person to represent an entire group. Also, women and BIPOC members should not be solely responsible for driving diversity efforts. Board members with the most power and privilege should push for more significant equity. 

To broaden recruitment efforts, leaders should move away from traditional backgrounds, such as being a previous CEO. Instead, focus on the expertise and skills potential board members bring to the table. Leaders should also consider using inclusive language in recruitment efforts, and understand then implement allyship on a personal and organizational level. 

Diverse and inclusive boards provide significant advantages to an organization, including more innovation and better connections with outside organizations, internal staff, and community partners. Executive leaders who prioritize board diversity benefit from those diverse perspectives as they navigate the changing expectations of stakeholders on environmental, social, and governance issues. 

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Published on August 20, 2021