Want Board Diversity? Practice What You Preach

For large companies, research and industry experts concede, a diverse corporate board has a direct impact on an organization’s bottom line, affecting a company’s ability to target a wide consumer base and inspire diverse talent at all levels of the organization.

Stocks from companies with at least one female board member, for instance, were found to outperform stocks from similar companies with all-male boards by 26 percent in the past six years, according to a 2012 study from Credit Suisse Group that analyzed 2,400 large companies.

Despite the research detailing the benefits of diversity, women and minorities continue to make only small gains in efforts to increase their representation on corporate boards. Only 16 percent of board seats at Fortune 500 companies are held by women, and women of color hold just 3.3 percent of all board seats, according to the 2012 Catalyst Census.

While employees and consumers are becoming increasingly diverse, the majority of executive board seats — nearly 70 percent of the 1,214 Fortune 100 board seats in 2012 — are held by white men, according to the Alliance for Board Diversity, or ABD.

African-Americans, Hispanics, Asians and Pacific Islanders have either made small gains or experienced losses in their corporate board representation, with African-American women comprising 2.2 percent of the total seats available, Asians and Pacific Islanders comprising 0.8 percent and Hispanic women comprising 0.8 percent of seats in 2012, according to ABD.

Phyllis James, executive vice president, special counsel for litigation and chief diversity officer for MGM Resorts International, a Fortune 500 company, said companies ignoring the call for diverse and inclusive corporate governance are underutilizing a key development tool.

“The focus should be on why institutions are not diverse and to challenge them to become more diverse,” James said. “We should be past talking about why diversity is important. There are enough studies and enough examples that demonstrate why diversity is important. Diversity is the paradigm of the current global economy. Everybody is trying to support a global consumer base.”

Companies Benefit From Diverse Boards
When Sheryl Sandberg was elected to Facebook’s board of directors in June 2012, she became the first woman to serve on the tech giant’s board, and a highly scrutinized corporate symbol for women in powerful positions.

Sandberg argued in her divisive book, “Lean In: Women, Work and the Will to Lead,” that her ultimate goal is to encourage women to lean in to positions of leadership, because with more female voices in positions of power, there will be more equitable opportunities created for everyone from the top down.

Sandberg’s sentiment resonates for many diverse executives, and it serves as an industry standard many companies are working to achieve, according to Jan Risher, co-author of “Team Renaissance: The Art, Science & Politics of Great Teams.”

Risher said a company with a diverse executive board models the standard for the organization at large. Diversity at the top sends an inspirational message to employees at every level by modeling the employees the company seeks to develop and advance.

“We lose track of how important it is to see diversity at the top,” Risher said. “Having a woman at the top of an organization, for example, makes a huge difference. To have women in powerful positions lets employees know it is possible.”

When diverse employees see advancement is a possibility, they are more likely to take on new responsibilities and strive for a leadership position. Through a tangible, concrete example, as is the case with a diverse corporate board, employees will see the impact of their hard work, Risher said.

“I believe in role models,” James said. “You can’t underestimate the symbolism of being diverse at the very top leadership level. It personifies the organization’s commitment to diversity and inclusion, equal access and opportunity. You could say you’re committed, but if your board is not diverse, you’re not living what you say you believe in.”

A diverse executive team sets an inclusive companywide tone. When a company highlights diverse leaders in corporate leadership roles, it reinforces the idea that diversity leadership is of value within the organizational structure.

“When you get highly effective diverse leaders operating effectively in high levels, it shows the ability of a diverse person to perform in a high level of responsibility,” James said. “It breaks down unconscious stereotypes and bias.”

For Fortune 500 companies in particular, fostering a diverse executive leadership team will benefit the company. A diversity of backgrounds, ethnicity and gender can be the impetus for innovation as the board’s multiple perspectives help improve the company’s national and global outreach and strategy.

A company with multiple corporate perspectives will also have more opportunities to represent and connect with different markets. “Without diversity, companies stay on a one-track way of thinking,” Risher said.

Diversity executive boards can constructively challenge the status quo; members organically draw on varied competencies, knowledge and backgrounds to keep pace with changing companywide dynamics, according to the 2009 study by executive recruiter Russell Reynolds Associates titled “Different Is Better: Why Diversity Matters in the Boardroom.”

Cosmetics company Avon, for example, uses a diverse board to target its core demographic — women. With six female board members, Avon held the most gender-diverse executive board in 2012 among all Fortune 500 companies, with 60 percent of its directors being women, according to the 2012 Credit Suisse Group study.

“Diversity is an inescapable reality of the modern workplace and the modern global economy,” James said. “The demographics in the U.S. have changed dramatically. If your organization wants to be innovative and continue to excel, grow, advance, you must shift paradigms to fit a more diverse workforce. You can either change with the times or become a dinosaur.”

Build an Effective, Diverse Board
Diversifying executive teams in Fortune 500 companies is difficult. There are a limited number of seats with no clear-cut path to recruitment. Further, executives who hold a seat do not have specific requirements or constraints for their position, making it difficult to track a company’s growth in top-level diversity.

Companies can promote diversity at top by developing a diverse talent pipeline and making their board meetings more inclusive. Employee sponsorship, for example, where an employee in a high-level position, referred to as a “power broker,” identifies, endorses and mentors a diverse employee rising through the ranks works, according to Deborah Epstein Henry, a consultant at Flex-Time Lawyers.

“People who are in management and leadership positions are policy makers, and the infrastructure and model in which we work isn’t supportive and hospitable” for diverse employees, Henry said. With an employee as a power broker, an organization’s future generation of leaders is more likely to be diverse.

By implementing a sponsorship program or other initiative, a company actively supports its diverse talent and internal development. Even better, this pipeline of fresh, diverse talent will feed executive-level positions, and the sentiments will resonate throughout the company, Henry said.

Tamara Lundgren, president and CEO of Schnitzer Steel, said she believes her organization’s approach to mentoring its young female employees has helped them develop their core leadership skills, according to the 2013 Center for Women in Business study “Advancing Women to the Top.”

“Sometimes the opportunity pipeline for women can get blocked for a number of reasons that aren’t gender specific — lack of confidence, communication skills, unwillingness to take risks,” Lundgren said. “Keep an eye on both young men and women coming into your organization, and make sure you dole out informal mentoring in equal measure and with equal directness.”

In addition to seeding a diverse talent pipeline through sponsorship and mentoring, companies should evaluate their executive team’s communication strategy to make sure every voice is being heard. “It’s not enough to put different viewpoints on a team,” James said. “A team should value and respect each of its members. If you are not practicing inclusion, people are not going to give 100 percent to the team effort because they won’t feel important.”

While diversity on Fortune 500 executive boards has remained stagnant in recent years, there is an industry-wide push for a more inclusive future. Organizations such as ABD and annual executive board diversity surveys are gaining traction among senior-level executives who hope to broaden their company’s representation.

“If you have not diversified your board, you are not acting in the best interest of your company,” James said. “The business case for diversity is compelling if not overwhelming. Diversity is about maintaining competitiveness.”

Jessica DuBois-Maahs is a former intern at Diversity Executive. She can be reached at editor@diversity-executive.com.

Tips to Implement a Diverse Talent Pipeline

While there are a limited number of board seats available, companies can promote corporate diversity in other ways, according to a 2013 study by the Center for Women in Business titled “Advancing Women to the Top.” Here are six recommendations for organizations looking to create a diverse executive board.

Start by analyzing organizational diversity. A company should initially accelerate board transformation by analyzing the company’s employees. Once a company identifies representation gaps, an initial push to fill leadership positions with diverse employee groups will jump start a cycle of successful inclusion.

Draft a diversity strategy. Once a company has identified diversity gaps in high-level leadership roles, drafting a strategy to get gender and ethnic diversity in key leadership roles within a specific time frame will help a business stay focused.

Make diversity and inclusion personal. A company’s CEO or other top-level executive should set an inclusive tone by telling his or her personal story about challenges he or she faced while coming into the leadership position. Setting an inspirational tone will motivate and connect employees to the company’s goals. The personal anecdote may also send a message to employees that diversity and inclusion is a corporate priority.

Embed diversity into the culture. Companies’ rooted core values should proudly instill diversity, displaying it in some way. For example, displaying a list of a company’s core values in the break area reminds employees of their workplace priorities. Diversity programs can be temporary, but embedding diversity and inclusion within a company’s culture leads to permanent change.

Empower HR executives: Create individualized development plans, succession plans, career paths and key promotions that target diverse employees to help them reach leadership roles. An HR department that supports a diverse talent pipeline can draft annual progress reports and use metrics to evaluate the program’s effectiveness.

Follow through with diversity initiatives. After setting up a plan to recruit a specific number of diverse board members in a certain time frame, company executives should provide some accountability to ensure efforts are met, such as a reward.