July 28, 2022

How Diverse Boards Lead to Organizational Success

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In August 2021 the Securities and Exchange Commission (SEC) approved the Nasdaq Board Diversity Rule. The rule requires Nasdaq-listed companies to have at least two diverse members on their boards or explain why they can’t meet this requirement. Public companies are also adopting their own diversity measures to meet the expectations of their stakeholders.

The role of boards is evolving rapidly in response to many changes including the COVID-19 pandemic, which has vastly increased the number of remote workers. As a result, companies need to look closely at the complexion of their boards and make the changes needed to demonstrate their commitment to diversity, equity and inclusion (DEI). Wolf Hill Group works with companies in cybersecurity and other sectors as well as non-profit organizations to recruit diverse board members.

Overview

A company’s shareholders elect its board of directors, which represents the shareholders’ financial interests. In most cases, a board also exercises governance over the company by developing management policies and hiring its top executives. The pandemic has disrupted many aspects of business operations, including basic business models, supply chains, consumer behavior, and employee expectations. This uncertainty is likely to remain as the pandemic itself eases, resulting in a cultural evolution that’s becoming the new normal in business.

Current research supports the trend towards greater board diversity. A 2019 report from McKinsey & Company shows that companies with boards in the top quartile of gender diversity are 28 percent more likely to outperform their peers. A 2021 report by BoardReady, a Seattle-based nonprofit that promotes board diversity, shows that diverse boards were better prepared for the pandemic. The study considered various types of diversity such as age, gender, and race, according to lead researcher Rajalakshmi Subramanian. Subramanian also reported that companies with a broader range of perspectives on their boards did better regardless of the specific type of diversity.

Companies and their boards are closely examining all aspects of their businesses as a result, including operations, sustainability, and human resources (HR). People-related issues like training, wellness, and commitment to DEI are also receiving greater priority from many boards. In addition to the pandemic and other public-health crises, societal factors are also affecting the ways that boards look at DEI issues. Customers, employees, vendors, and other third parties are calling on companies to support sustainable DEI efforts.

Benefits

The changing global economy offers multiple benefits to boards that embrace diversity, resulting in a competitive advantage over companies that don’t. Exercising corporate governance over a rapidly evolving workforce favors boards with a wide range of expertise, so there has never been a better time to consider increasing board diversity. Specific benefits of diverse knowledge and viewpoints include a broader view of risk management, a more inclusive company culture, and stronger brand reputation, as a company aligns its actions with its values.

However, the benefits of diversity don’t apply to tokenism, in which boards pursue diversity purely for its own sake. A 2009 report from Russell Reynolds Associates found that tokenism fell short of both the opportunity and need for diversifying boards. It added that boards are starting to understand that it’s the increase in perspectives that is crucial to realizing the benefits of diversity, rather than the mere inclusion of members with diverse traits. Companies should obtain that increase in perspectives by mirroring the diversity of their own customers and stakeholders. Furthermore, they should consider all dimensions of diversity, including professional experience, race, gender, and sexual orientation.

Solutions

Executive recruiters like Wolf Hill Group work closely with their partners to identify well-qualified, diverse candidates for open board positions. Each position requires candidates with a particular skill set, but the recruiting teams at Wolf Hill Group also ensure that board candidates are a solid fit for the company’s culture. This approach builds the vibrant, inclusive culture necessary to attract talented leaders who will inspire collaboration and innovation in their workforce. Building such a culture requires a strategic initiative, like any other business goal. A strong culture attracts people who share those values, leading to a deeper commitment to the mission and to their fellow employees.

Wolf Hill Group/Slone Partners CEO Leslie Loveless stated in a 2020 interview with Silicon Republic, “It is no longer a question but a fact that diversity of thought leads to creativity, innovation, comprehensive strategies and, ultimately, greater success.” Loveless added that she expected to see more diverse leaders in companies with high-energy cultures and disruptive technologies, especially young females. For example, a 2021 report cited the contributions of 25 top female leaders in the medical field, including Ashley McEvoy at Johnson & Johnson. Loveless also stated in a 2020 commentarythat diversity will result in long-term change when a company successfully incorporates the ideals of inclusion and equity into its culture.

Summary

Companies without diverse boards will appear increasingly out of touch with their customers’ beliefs. This process can impact an organization in various ways, including sales and recruitment. Companies must therefore take a public stance by appointing board members who reflect the diverse world in which we live.

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