There is no doubt that a diverse workforce equates to new ideas and an inclusive environment. However, initiatives to bring diversity in boardrooms are lagging. In the U.S, boards are predominantly white with less than one fourth of newly elected directors being minorities. Among the global Fortune 500 companies, visible minority women represent less than 5 percent of board seats. There is a lack of age diversity as well. Young professionals are underrepresented in boardrooms as the average age of directors is 63 years.
To understand why the lack of board diversity persists, there is a need to assess how boards are formed in the first place. Traditionally, the process of recruiting candidates and filling board seats occurs through personal networks or word of mouth referrals. While personal references can attest to skills and instill trust, it is not an objective method.
This is the point that Patricia Lenkov, founder and president of Agility Executive Search addresses in her book Time’s Up: Why Boards Need to Get Diverse Now. In the book, Lenkov describes the typical board search process as "restricted, exclusive and uncreative." From her perspective, the search for finding a new board director usually begins with the CEO and their advisors choosing candidates from their networks who are already a part of the corporate world. This is problematic because this process fills board seats with professionals who may be too similar in their experiences and backgrounds.
“To be truly authentic and effective, I think diversity initiative needs to begin at the top of the organization.” said Lenkov in an interview with TriplePundit. “I think employees today are very savvy about misrepresentation and things that are not authentic, and they will look at this and see if there's discrepancies.”
Board diversity creates a positive impact for companies. After diversifying their boards, directors reported unique perspectives, enhanced board and company performance, improved relationships with stakeholders and enhanced overall approach to company strategy and risk. If fair representation in the board level is proving to be fruitful, why is diversity still stagnant here?
According to Lenkov, there are lingering beliefs within corporate teams that prevent them from recruiting and filling diverse board seats. The first belief is a scarcity of qualified diverse candidates. Lenkov cleared this misconception by explaining to 3p that companies must seek new and creative ways to find such candidates and go beyond traditional methods. Companies simply need to work harder to recruit. Another myth she addressed is thinking one diverse board member is sufficient. This isn’t true, according to Lenkov. Boards need to continuously build on diversity, equity and inclusion (DEI).
In addition to this, Lenkov explained that long board tenures and inertia are impeding diversity in boardrooms. Directors tend to stay on board for a long period of time and this prevents new individuals from taking a seat. While a board size can be increased, a long tenure contributes to the homogeneity of a board itself. In fact, directors with the longest tenure are less likely to want change in boardroom dynamics including replacing or bringing new directors on.
To this point, Lenkov suggested looking past traditional qualifications and backgrounds. "Boards need to understand that not all members need to be CEOs or CFOs. They can be digital people, heads of technology, they can be marketing people, they can be human capital people,” said Lenkov. “There’s all kinds of really good skill sets that boards can use.”
Overcoming these misconceptions is critical for creating diverse boards because it encourages leaders to integrate diversity authentically in the work culture. Enforcing diversity without addressing deeper issues is detrimental especially if there are concerns about boardroom changes.
In the U.S, 58 percent of directors claim diversity is driven by political correctness. In addition, 31 percent of directors claim that board diversity is resulting in the selection of additional, unnecessary candidates compared to 26 percent in 2020. With the SEC’s recent approval of NASDAQ’s proposal of board diversity and disclosure requirements, there is a danger of board diversity simply becoming a requirement to check off on a recruitment qualification list.
To counteract inertia, long tenures and implementing diversity as an obligation, Lenkov explained to 3p that robust independent board evaluations are needed. According to her, current board evaluations are not extensive enough. What’s needed, Lenkov further explained to 3p, is assessing a board member’s performance and if it is not up to par, then they should be replaced. This can undoubtedly be challenging for members. In fact, dealing with underperforming directors is the biggest challenge for boards. And here, lies a great opportunity for transformation.
If diverse boards are going to be formed, a lot of change is necessary. Before introducing any obligatory requirements, we can assess and change the existing recruitment and management processes that hinder diversity at the start.
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