How Directors Can Move Diversity Forward

Board of Directors
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Think about the issues that boards of directors have oversight for: They help the CEO and other C-suite leaders shape strategy and governance. They weigh in on talent, and how the organization is preparing future leaders. And of course, it is the board’s responsibility to hold management’s feet to the fire when it comes to performance.

Even with all these issues, what our current environment is making abundantly clear is that boards of directors play a critical role in influencing decisions around diversity and inclusion.

The research has shown time and again that diversity increases a company’s return on investment. Global consulting firm McKinsey & Co. found that companies with more diverse executives were 33% more likely to see above average profits. Further, companies that fall short when it comes to gender and ethnic diversity are less likely to achieve above average profitability, the firm states.

But here’s the key—and often-overlooked—point in all of this: Diversity and inclusion begins in the boardroom. And while there has been progress—women now account for 25% of directors at Fortune 100 companies, up from 18% in 2010—the growth in the number of minority board members has been much slower. Minorities now make up just 19.5% of Fortune 100 board seats compared with 15.4% in 2010.

Cultivating the right mix of directors—gender, ethnicity, experience—is not only critical to improving the board’s performance, but it has the power to drive sustainable change across the entire organization. At a time when companies are trying to untangle what the next normal will look like, it’s more important than ever for directors to walk the talk when it comes to having a board that reflects not only the diversity of the country, but of its own workforce.

A plan forward

One of the most fundamental ways directors can begin this process is by taking an honest and candid look at their board’s current composition and where they’d like it to be. Jack “Rusty” O’Kelley, managing director of board and CEO advisory partners at management consulting firm Russell Reynolds, says matching skills and experiences to a go-forward strategy is essential.

“A lot of boards fill one position at a time, or just think about filling the skill set that was lost,” he says.

A more holistic approach, O’Kelley believes, is to do a proper board composition study first, and then look at future needs. “The smartest boards create a succession plan that also looks for opportunities for diversity within that plan,” he says. “The two things aren’t mutually exclusive.”

Connecting it across the enterprise

Beyond ensuring diversity at the board level, directors must also be intentional about their oversight of human capital management throughout the organization. Janet Foutty is the executive chair of the board at Deloitte U.S. She’s says to build sustained long-term change for the better, “will take leadership accountability, and one of the best ways to do that is through measurement.”

She believes that starts with disaggregating diversity data at all levels, from entry to the C-suite. “With this data in hand, boards have a role to play in driving management to set goals and articulate ways in which processes will change across the talent pipeline to ensure those goals are met,” she says.

This is a key point because some companies do not give their boards enough granular data in order to make judgments on progress around diversity, adds O’Kelley. But asking for that data isn’t enough.

“Once the board has that data, it needs to ask management about its plan to meet its diversity goals,” he says. An increasing number of companies, including Starbucks and Microsoft, have gone a step further by tying part of executive compensation to diversity goals.

Understanding inclusion

While diversity and inclusion might appear to be inextricably linked, Foutty says, they are not one and the same. It’s important for boards to understand this, and to appreciate the value in pursuing both. In fact, when Foutty became executive chair at Deloitte over a year ago, she says she commissioned a team to assess her own board’s ability to effectively govern inclusion. Among the questions she says boards can be asking themselves to get started:

  • How does the board help to make inclusion strategy an integral part of the organization’s business and focus of management strategy?
  • How does the board challenge management to consider the impacts to the organization’s diversity and inclusion when making strategic decisions?
  • How seriously does the board consider inclusive leadership traits when looking at leadership succession, including in the candidate pipeline, development, and compensation?

The pandemic as a catalyst for change

Foutty and others say they are optimistic that the pandemic is fostering an acceleration and laser focus on the issue of diversity, equity and inclusion. The one area that Foutty is concerned about is the pandemic’s outsized impact on women. She cites a recent New York Times article that showed that 80% of the 1.1 million workers who dropped out of the workforce in September were women. The progress being made around diversity and inclusion has to be looked at “as a movement not a moment,” she says.

Still, O’Kelley says Covid-19 is at least focusing the spotlight on the most essential issues. “The combination of business being so radically changed because of the pandemic, and the parallel emphasis on social justice,” he says, “have combined to create a unique moment where companies are being very deliberate and intentional about not only their workforce needs overall, but how that aligns with their thinking about diversity and inclusion goals.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Susan Caminiti

Susan is a writer and senior editor whose work covers a wide range of business and social topics including corporate profiles, personal investing, entrepreneurship, health and wellness, work/life issues, and wealth management for both editorial and corporate clients. She is a former staff writer for Fortune magazine and her work appears in Fortune, Fortune.com, CNBC.com and in a variety of other print magazines.

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