Diverse perspectives are critical to boards being able to fulfill their fiduciary roles, and play a key role in ensuring the strategies of the companies that they're involved with are aligned with where things are going to be in the future.
Despite women and minorities collectively representing an all-time high percentage on Fortune 500 boards, White/Caucasian men still hold almost 70 percent of total board seats, according to the latest Missing Pieces Report: The 2016 Board Diversity Census of Women and Minorities on Fortune 500 Boards. The study, which examines how boards are evolving among top companies, says white male representation is almost unchanged since 2012.
FEI Daily spoke with Ronald Parker, president and CEO at the Executive Leadership Council and Deb DeHaas, chief inclusion officer, Center for Board Effectiveness, Deloitte, about trends in board membership and the benefits of diversity to the companies they serve.
FEI Daily: Why is diversity so important when it comes to board composition?
Deb DeHaas: Given the environment that we’re in today, the pace of change is so rapid. The expectations of boards and organizations to grow, to be responsive to not only their shareholders but also their key stakeholders (which includes consumers), is to have diversity in its broadest sense in the boardroom. The importance of having diverse skills, diverse experience, diverse perspectives, and diverse generational lenses on topics that are most important in the boardroom. All of those perspectives are really critical to boards being able to fulfill their fiduciary roles, and play a key role in ensuring the strategies of the companies that they’re involved with are aligned with where things are going to be in the future.
FEI Daily: Women and minorities have seen little change in board representation. Why is it so slow moving?
Ron Parker: It’s a process. Most boards are comprised of CEOs, and most CEOs are white males. You have a generation of leaders who are running these companies that are CEOs and chairmen of their respective boards. They have a tendency to rely on a network that they’re most familiar with and comfortable with. So the rate of change is slow because the experiences of several of these chairmen, and nominating and governance committee members, are made up of organizations that are reflective of white males.
DeHaas: On a positive note, there has been continued progress, albeit at a much slower pace than we would hope for. The Executive Leadership Council has a goal of 40 percent representation of women and minorities in the boardroom by 2020. At the current pace of change, we will not hit that milestone until 2026 or potentially later.
I totally agree that traditionally, CEOs have been a main source of talent for the board. But I think one thing that is shifting is that fewer companies are letting their CEOs take on board roles. At most, they’ll let them take on one outside board role in public companies. Today, you’re seeing CFOs and business unit heads joining boards.
One of our suggestions is to focus on widening that aperture, expanding your more traditional lens and networks that you rely on. Today in the Fortune 500, roughly a third of nom-gov chairs are now women or minorities. I’d like to be optimistic that as that leadership pool expands in the nom-gov committee, which has a key role in driving board composition and reviewing the skills and competencies of board members, that will be a source that will help drive additional diversity in the overall board.
Parker: Historically, a lot of skills and C-suite executives that are placed on boards come from the sales or marketing side of the equation or finance. Those are the three functional areas. We’re beginning to see an uptick in the number of board requests for people with legal backgrounds. A lot of these companies are global companies that need to understand the geopolitical landscape. That’s encouraging because there are a lot of women in the legal profession, and a lot of them are black women, and many are getting noticed if their companies are willing to support them for board decision.
We’re moving from Sarbanes-Oxley, where a lot of CFOs were asked to join boards, to cyber, where you have CIOs being asked to join boards. We’re trying to determine if there is a trend moving towards the geopolitical space, which would be encouraging for women and minorities.
As you see more women and minorities take on C-suite positions, you will have more of a talent supply available to address some of the emerging topics like risk, cyber, activism – especially from a legal perspective where you’re seeing legal professionals being sought out because their experience is playing such a critical role in the strategies of companies. You’ll start to see dynamics and topics enter the conversation at the board level that will assist us in accelerating the pace.
FEI Daily: Currently, 65 percent of Fortune 100 boards have greater than 30 percent board diversity, compared to the Fortune 500 where that percentage drops to just under 50 percent of companies. What do you attribute the difference to?
DeHaas: What you see from the survey is that the Fortune 100 are ahead. They have made more progress. We’re hopeful that they can lead the way and maybe accelerate the pace of change in the broader Fortune 500.
Fewer than 15 percent of all board seats in the Fortune 500 were held by minorities. I think some of the larger companies have tended to, historically, be just slightly ahead of some of the companies that perhaps are not as large or perhaps as dominant in their industry.
Some of the companies that have had those key stakeholders that are more diverse have been ahead of the pack in adding diversity in the boardroom. Some consumer companies were leaders earlier in this process in terms of adding diversity to their board.
Parker: Consumer companies get feedback daily based on the composition of their consumers that buy their services and their products. The challenge would be the B2B companies, the professional services that may not see that as directly.
The risk is higher for Fortune 100 companies than some of the newly emerging companies. They have to change their business models in order to sustain their growth. A large Fortune 500 organization’s growth will come from different areas of strategic alliances and partnerships, which makes them open to being diverse at their board level because they need that new thinking, those new insights, in order to sustain their growth.
FEI Daily: How can the census act as a guide for corporations?
Parker: We purposely separated the Fortune 100 and the Fortune 500 because we wanted to create a competitive edge there. All for-profit companies are extremely competitive so they get to see some of their sector leaders rank a little higher, and that will spawn some conversations. Deloitte will participate once again in sponsoring the Black Corporate Directors Conference where we will bring in not only public trading companies, but also a lot of the world of private equity. Many of those companies will eventually go public and have a board.
This document gives us the ability to convene and have discussions as to who’s doing this well. What are some of the barriers to entry in driving this change? What might be learned from best in class and who might we partner with to accelerate the change?
DeHaas: It also creates an opportunity for an individual board to benchmark themselves against some of these statistics and see where they fall. I know in our Deloitte board, and we’re not a public organization, but more than 50 percent of our board is made up of women and diverse leaders. That’s something we’re very proud of. We’ve been very intentional about that. I do think to drive change, it will take intentional action, and intentional focus to continue to make the progress that we hope to have.
For an individual company, they should benchmark themselves and see how they look. Then really be very intentional about the succession of their board, just like they are around the succession of their key executive leadership.•