Raising the Board Refreshment Bar: Bringing Diversity Into Committee Leadership

Raising the Board Refreshment Bar: Bringing Diversity Into Committee LeadershipZoom inDownload PDF

Tackling fresh opportunities. That’s what profitable companies do. Delivering consistent, stellar results. That’s what winning companies do. More and more of these companies are seeing that a diverse board helps to deliver those results.

But the challenge is how to get there faster.

Diversity manifests in a number of ways—in experience, in skills, in gender, in ethnicity, in cultural background, in nationality, and in race. Boards have made progress, but are still a ways off from making this a reality. Take the issue of gender diversity. Boards have been adding women at a faster rate than men, though they are still well short of parity. Equilar says that in 2019, 27% of the seats in the 500 largest companies by revenue were held by women. Companies also still have a long way to go in the membership of committees, where most of the work of boards gets done.

The lag in diversity in committee leadership is getting especially hard to explain, as committees take on ever broader responsibilities. Nominating and governance committees are tasked with more rigorously identifying the diverse skills their boards require, and populating board committees with the right membership. Compensation committees are now called on to deal with organizational culture, leadership development, succession planning, diversity and inclusion, and pay equity below the executive ranks. Sustainability and technology committees, the new kids on the block, need diverse thinking to respond to new developments savvy investors and customers increasingly care about.

While a first step in introducing diversity has been simply to get diverse candidates on boards, a logical next step in strengthening governance is to deliberately position diverse members—and leaders—on committees when their experience can make a difference. This remains an opportunity ripe with potential. It doesn’t mean homogenous committees can’t make good decisions, only that diverse ones, by applying a broader cross-section of experience to today’s multifaceted problems, can frequently make decisions even better.

The question is how to speed things up and realize the potential of this opportunity. Like so many efforts, inertia can take over unless you apply a disciplined process to deliver measurable results to the committees:

  1. Engage committees in identifying not just needed skills but perspectives. Do the members represent a reasonable cross section of stakeholders affected by upcoming and ongoing decisions? Make sure diversity goes along with the needs of the business.
  2. Inject new diversity at identified junctures when adding new members, including retirements, and as needed, force rotation at regular intervals.
  3. Create the right Board culture: Affirm the value of diverse perspectives that all members provide—
    and support their questioning of tradition. As a group of Wharton School professors pointed out in Harvard Business Review in 2019, boards need to help new members become an influential voice.
  4. Encourage the committees to promote diversity in the company’s management ranks as well, to support this broadening of perspectives.

When the nominating committee considers committee membership, it will be well served to consider the issues each committee is addressing. A mix of experience is usually helpful. Longtime, seasoned committee members bring consistency and wisdom to the job, while new, diverse members can help the company realize untapped value on critical topics such as social media, mobile apps, and cybersecurity. Similarly, within compensation committees, consider the fresh perspectives new members could bring to core decisions around motivating and retaining key talent, leadership development, and more recently, sexual harassment.

As with the committees as a whole, committee leadership will benefit in surprising ways from more heterogeneity. At one big healthcare company that had lost its Say on Pay vote, the board moved a woman from the nominating committee with a reputation for listening to investors, into the leadership the compensation committee. Her track record in finding solutions that bridged shareholder/management divides gave her the legitimacy to credibly field investor concerns. In one year, she turned around investor sentiment to win a positive Say on Pay vote and change perceptions of the company to that of a governance leader.

To be sure, boards have a slate of opportunities to address. But injecting diversity into the key committee positions can accelerate the move to greater diversity as a whole, including conversations with diverse perspectives. Given that smart decisions today depend on deep insights on technology, markets, talent, ethics, communications, financing, and more, homogeneity on board committees can pose a risk if issues outside most people’s ordinary experience are not addressed by directors with inside knowledge. This risk extends into the future, when diversity and depth of thinking on non-traditional issues today sets the tone for a winning company tomorrow.

All this will require faster change for boards in pushing diverse voices into committee and leadership roles.

It will create more work as well during the on-boarding of directors from less traditional backgrounds. But the benefits of selectively placing diverse voices in key positions—which can spark the innovation that leads to billion-dollar businesses and opportunities—are impossible to dismiss. A proactive program to match diversity with strategic necessity through faster, disciplined planning, rotation and refreshment, along with a culture encouraging diverse conversations, is no longer a “nice to have.” It is a fiduciary responsibility.

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