Why Board Diversity is More than a BuzzWord

Diversity isn’t just a buzzword – it’s an important factor in business development and long-term success. With the increasingly important role of diversity within the workplace, we highlight some recent findings on the importance of board diversity and why executive leadership teams from companies big and small should be thinking about it.

In the 1980s, independence and concerns over whether a “board [was] truly independent of management” were the primary issues within corporate board development,” Howard Sherman, Executive Director and Head of Corporate Governance Business Development for MSCI ESG Research, told Forbes recently. “Some believed that there were ties that might cloud the board’s objectivity,” he explains, “therefore lessening their resolve when it came to overseeing management on behalf of the shareholders.”

Today, however, diversity has emerged as corporate America’s primary concern. “A focus on whether the board has the right mix of talent is now a major consideration,” Sherman said. “This is a very healthy development, and companies are responding.”

“A diverse workforce helps us better understand and address the needs of our customers,” adds TIAA’s CEO and Alphabet board member, Roger Ferguson.  “It brings a range of experiences and perspectives to the table, which leads to more innovative thinking and better problem-solving.”

While various studies have cited a strong correlation between board diversity and increased financial returns, the question over board diversity and performance doesn’t stop there. Sherman explained:

“The real question is whether this is correlation or causation: does having a significant number of women in leadership positions lead to better outcomes? Or, do companies with relatively good governance see board diversity as a natural extension of how they already operate? Either way, board and senior management diversity is becoming an interesting investment signal for investors attuned to the issue.”

At Raines International, we advocate strongly for increased diversity and the contributions it makes to understanding different opportunities, solving problems in a changing marketplace, and fostering better decision-making. 

“Strategic clients such as PepsiCo, Johnson & Johnson, and Boeing have recruited and groomed high performing women and people of color into executive roles,” said Pauly Rodney, Vice President and co-head of Raines International’s Diversity & Inclusion Practice. “The bench of diverse Board candidates is deeper now than it has ever been.”

Despite the potential for a high return on investment and a growing pool of diverse talent, corporate America might not see equal diversity on boards until the 2050s. “At this rate, the GAO [Government Accountability Office] has estimated that it could take more than 40 years for women’s representation on boards to be on par with men’s,” Securities and Exchange Commission Chairman Mary Jo White has said. With the current state of the United States’ top performing companies, this fact isn’t too difficult to believe.

Last month, we reported Catalyst’s findings on board diversity, which highlighted how underrepresented women are on boards.  In May, Twitter appointed Debra Lee as its first African-American board member. Twitter isn’t alone, though. In April, Uber brought on Huffington Post founder and editor-in-chief Arianna Huffington as its first female board member and Google’s parent company Alphabet only recently appointed its first African-American board member, Roger Ferguson, after missing its mark when its 2015 diversity statistics found only 2% of staff were African-Americans.

“Alphabet added a brilliant and well-respected executive to their Board,” adds Rodney. “The fact that this is also a person of color sends a message to other Boards – diverse candidates exist, companies just need to hire them.”

As a result, the SEC’s White is calling for more firms to reveal the diversity on their boards, according to the Wall Street Journal. “The low level of board diversity in the United States is unacceptable,” White said at the International Corporate Governance Network. “Our lens of board diversity disclosure needs to be refocused in order to better serve and inform investors.”

Within the ongoing conversation on board diversity, Roger Ferguson makes one thing clear: board diversity is no longer “just nice to have. It’s a must.”