Significant barriers to board diversity remain. One obstacle preventing an increase in the number of diverse board nominees is the common preference for CEO experience — few women and other minorities have held such positions in the recent past. Another important issue is the slow turnover among board members: the average tenure of a board director at a Russell 3000 company is 10.4 years, according to a recent study by the Conference Board.
Nonetheless, progress is gradually being made, especially in the area of gender diversity. The percentage of women on the boards of Russell 3000 companies grew to 18.5% in 2018, according to research by Equilar.
To find out how companies are currently approaching the issue of board diversity, Toppan Merrill commissioned Mergermarket to speak with three leading experts as well as one public company executive.
Toppan Merrill question: What do you think are the main barriers to greater board diversity at the moment? Does it have more to do with discrimination or a perceived lack of qualified female and minority candidates? Leading industry experts weigh in...
Lori Zyskowski, Gibson Dunn says: I think it's more a perceived lack of qualified candidates – but I think that is more often the case at highly specialized companies. Some companies are looking for very particular industry experience and think that the best people are those who have held CEO jobs at other companies in the industry. That viewpoint inherently makes it more difficult for women and minorities who haven't held those jobs historically.
There has been a new heightened focus on identifying diverse board candidates with interesting experience in a given industry, whether it be university professors or researchers or people who have held other relevant positions. Companies are also looking at people who have had a significant government role to enhance diversity. If you look more broadly than simply at other CEOs in your industry, I think there are many high- caliber women and minorities who are looking to join boards, and companies are finding that more and more.
John Valley, Osler adds: I would agree that it’s important to pay attention to which pools of talent you’re using to find new directors. If you mandate your executive search provider to look more broadly and to consider gender or other characteristics specifically, which a number of companies are starting to do, that can greatly improve your chances of finding more diverse candidates.
Then, as Lori said, if you mandate CEO experience on your potential director nominee's resume, you're going to have a disproportionate number of men at this point. But expanding the search parameters opens the door to other qualified candidates – for example, to a woman who might not have the CEO title, but has P&L responsibility for a segment of a larger business. That individual will be well placed to make a very meaningful contribution to the board. A shift to focus on the individual’s ability to contribute, rather than on the title they've held is a subtle but important one.
A focus on industry experience is another common barrier to entry. While it's certainly a consideration – there's no question that you want some of that expertise on your board – is it the case that every member of your board has to have it? Probably not in most cases. Improving diversity on your board typically requires thinking very carefully about having an appropriate mix of skills on the board, and being mindful that imposing certain requirements can inadvertently limit the talent pool from which you have to draw.
We are also seeing some companies take interesting steps, such as putting women on their subsidiary boards to get them board experience, so that when they apply for board positions at other companies, they can point to that. It's part of their people development strategy.
Naz Zilkha, Dechert weighs in: Personally, I don't think it's a lack of qualified candidates. Women account for almost half the workforce, yet sources have indicated that less than 20% of Fortune 500 boards have women on them. It's a process that will take time, and I think part of it has to do with identifying which aspects of diversity are important, as we discussed earlier. I think folks are currently grappling with the decision of whether to include diversity among their characteristics for nominating folks, as well as deciding how they would define such a policy and what characteristics they should deem to be important. Diversity for the sake of diversity isn't the only reason to include diversity on boards – I think nominating committees are going to be pushed to take a more multi-dimensional approach to evaluating candidates, to build boards that can draw upon a wide range of perspectives, experience, expertise and knowledge.
Nominating committees will need to identify diversity attributes that will benefit the company in the long term and justify why they are pursuing those policies. There are studies on both sides of the issue of diversity and corporate performance, but I don’t think anyone would dispute the idea that having a diverse board does have benefits. Aside from creating unique perspectives and ideas, which ultimately can mitigate risk, board diversity can helped attract and motivate talented employees. It can also help companies better understand their customer base, for example.
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