Bringing Authentic Diversity to the Board Room
“Board with a diverse mix of genders, ethnicities, career experiences, and ways of thinking…are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.”
– Larry Fink, Chairman and CEO, BlackRock
No one would dispute that a diverse leadership team is critical for innovation and navigating the ever-changing business climate and competition. However, there has been significant discussion around instituting diversity requirements for boards of directors in response to Nasdaq’s recent proposal – you can read it here. However, boards of directors must not subscribe to tokenism, bringing on a board member as a symbol of diversity instead of valuing an individual’s skills, experience, and problem-solving skills.
Nasdaq’s Diversity Requirement
In December of 2020, Nasdaq filed a proposal to adopt new listing rules relating to board diversity. If approved, the new listing rules require all companies on Nasdaq’s U.S. exchange to have at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+. Small companies with only five current board members may bring on only one diverse director. Any institution that does not meet the diversity requirement must explain why they do not have diverse directors in writing.
In the proposal, Nasdaq provides each company with one calendar year from the date that the U.S. Securities and Exchange Commission (SEC) approves the proposal to comply with the requirement for statistical information. The SEC has not yet decided. As of right now, about 75% of listed companies would not currently meet the proposed diversity standards.
Should diversity be required on a board? No. Requiring that somebody have a particular skin color, race, ethnic background, or gender to be on a board due to their symbol of diversity is tokenism. If the acumen an organization is looking for leads toward an ethnically diverse woman because of her expertise, wonderful. However, if a man happens to be a more qualified candidate, then the board should select the better candidate. Electing diversity at the board level for the sake of a diversity requirement could be disastrous if the selections are not intentional and do not fulfill the organization’s needs. A diversity requirement could imply obligatory selections and reinforce inequality instead of empowering the extensive supply of qualified females, underrepresented minorities, and LGBTQ+ board members.
Defining the What
It is critical to have the optimal mix of the following to best equip the board in guiding the strategy of a company:
- Skills, expertise, experience
- Cognitive diversity – problem-solving, conclusion drawing, and communication styles
- Demographic diversity – gender, ethnicity, age
- Representative of the target audience, end-user, or community
If an organization’s customer base is 30% female, then the policy should be that 30% of the board should be female. If the board serves a community that is 25% Hispanic, then 25% of the board should be Hispanic.
Use the following guiding questions to get started when analyzing board composition:
- Discuss at the board level what the organization needs to have on the board versus who.
- Define what the strategic leadership needs are for the next one to three years.
- Are there any current gaps on the board to get you there?
- What acumen, experience, and skills are necessary to meet those initiatives and objectives?
- What qualities or strengths are needed? (strategist, visionary, analyzer, theorist, consensus builder, leader, communicator, etc…)
- Identify who matches the what needed in the board room.
- Is the current board’s composition representative of the target audience, end-users, or community?
Implementing a board matrix to track the strengths and weaknesses of a board’s composition is a best practice and empowers authentic diversity and inclusion. Avoid token appointments on boards. Be creative and reach outside the regular circle of people to provide opportunities for board member positions. The key is to listen to the range of thinkers, voices, and experiences at the table in order to benefit from all the good that diversity brings….