Leadership Diversity: Board Governance Should Reflect All Stakeholders

December 9, 2021 — In a recent webinar on board diversity, our panel of experts discussed the importance of having a board of directors reflective of all stakeholders. Panel participants included Todd Federman, Managing Director, North Coast Ventures; Pamela Gibbs, Director of the Securities and Exchange Commission’s Office of Minority and Women Inclusion; Eric Douglas Keene, Managing Director, RSR Partners and Founder, Keene Advisory Group; Kimberly Reed, Managing Director of Talent at Blue Point Capital Partners; and Richik Sarkar, Partner, Dinsmore & Shohl LLP—with Dr. Ellen Burts-Cooper, Senior Managing Partner, Improve Consulting and Training Group, moderating the discussion. 

A Fall 2020 assessment of the 3,000 largest publicly traded companies found that only 12.5% of board directors are from underrepresented ethnic and racial groups. While this shows some progress—up from 10% in 2015—companies need to do more in this arena.  

Because a lack of prioritization of the issue is commonly blamed for these low numbers, this panel discussion focused on how to solve that problem. Check out some of the highlights below.

The evolving landscape of board diversity 

There is a trend across states to institute rules dictating that certain boards need to have a specific number of diverse board members. This is most prevalent in California but is stretching into New York and Illinois—and around a dozen other states are either in the process of instituting these rules or strongly considering them. 

Additionally, in a significant move by the stock exchange, any company listed on the Nasdaq must have one female director and one director from an underrepresented minority population or who identifies as LGBTQ+. While this trend continues to gain traction across certain parts of the country, there are also groups that immediately sue on the indication that these rules are unconstitutional.  

However, as an increased number of investors require more transparency from the companies they are investing in, more rules like this are being created and will continue to be enforced. 

The benefits of board diversity 

Studies have revealed a strong correlation between diversity, equity and inclusion (DEI), and performance. Companies that have a strong culture, and that can fold diversity and inclusion into that culture, statistically perform better. This can be attributed to the diversity of ideas, skills and perspectives, as well as employee satisfaction and retention, among other things.  

As the spotlight increases on diversity and inclusion, it becomes more apparent that people want to work for and do business with companies that are committed to DEI. Because talented individuals generally prefer to work for companies that recognize the value of diversity and inclusion, there has already been an obvious gravitation toward those businesses. Startups and newer companies tend to have a younger voice, which generally has a better acceptance of DEI. Instead of simply paying lip service to DEI, companies should implement action steps to make themselves more attractive to their customer base and potential employees.  

Steps to eliminating bias and implementing meaningful change 

The first step toward eliminating bias is to acknowledge that biases exist in the first place, and that we all have them. Only then can you begin to put objective structures and processes in place to reduce these biases.  

Other recommendations to reducing bias in a company include having environmental social governance (ESG) policies in place, as well as the ability to produce clear DEI metrics for employees, investors and other constituents. Another good way for a company to put its money where its mouth is? Tie diversity and inclusion to compensation for its executives.  

Other topics the panel discussed included risk that can occur to a company due to lack of diversity, whether lack of diversity is a supply or demand problem, and resources that can help with increasing board diversity.