Board members have the ability to impact an organization's talent strategies, culture and bottom line — which is why questions of board diversity have resonated strongly in 2020.
Directors at Fortune 500 companies in the U.S. recognize the importance of proven expertise and diversity when seeking new members, and "all stakeholders are watching how boards move forward on diversity," according to Lyndon Taylor, managing partner, diversity and inclusion practice at Heidrick & Struggles.
"More so than at any other time, boards, leaders and their organizations understand that having diverse voices and inclusive cultures are a business imperative," Taylor told HR Dive in an email. "We’ve found that companies with more diverse boards tend to outperform their peers, and there’s a body of research that supports the value of diversity in boardrooms and the C-suite."
Heidrick & Struggles' 2020 U.S. Board Monitor, released Sept. 9, analyzed trends in non-executive director appointments at Fortune 500 companies in 2019. Between 2018 and 2019, the amount of vacant or newly created board seats filled with independent directors increased — 467 compared to 462 in 2018, according to the international executive search and consulting firm. Almost half (44%) of non-executive director appointments in the U.S. last year were women, which Heidrick & Struggles noted was the highest proportion in the 11 years since it first began tracking board appointments.
But there has been slow progress in regard to racial diversity of directors, according to Heidrick & Struggles. In 2019, appointments of Black board directors decreased to 10% of all appointments, compared to a high of 11% in 2017 and 2018. Meanwhile, appointments of Hispanic board members increased 5% in 2019, up from 4% in 2018. And, appointments of Asians and Asian Americans remained unchanged from 2018 at 8%.
C-suite experience and building diverse boards
"Too often, boards recruit executives with similar backgrounds and experiences when choosing new directors," Taylor said. The research found that the majority of boards (72%) filled open seats with directors who had previous public board experience, which is an all-time high and an increase from 69% last year, according to Heidrick & Struggles. Half (50%) of the new board appointments were current or former CEOs, and less than a third (21%) were current or former CFOs. In order for racially diverse candidates to have CEO experience to obtain board seats, organizations need to confront systemic issues, according to Taylor.
"Companies are opening their eyes and beginning to address their own systemic issues around racial equity in leadership and the workplace," he said.
An August report by Working Mother Media found that many Asian, Black and Latinx women are considering leaving their corporate jobs within the next two years for entrepreneurship citing bias at work. The professionals surveyed said there are barriers to profit-and-loss or core operation roles. These critical roles often oversee cash flow and advise budget allocations for an entire organization, and are typical key stepping stones to top corporate positions, according to the report. Intersectionality — the interconnected nature of their race, gender and ethnicity — makes it more difficult to advance to senior positions, some respondents said.
"We know board-ready, diverse talent is out there, but the number of diverse leaders in these senior roles today is too low," Taylor said. "To close these gaps, boards need to make a concerted effort to expand the criteria for board selection while also ensuring diversity is a priority in succession planning and building the future pipeline for top leadership roles."
In May, amid calls for racial justice following the killing of George Floyd, many companies evaluated diversity and inclusion practices at the urging of employees and the general public. Alexis Ohanian Sr., co-founder and former CEO of Reddit, resigned from Reddit's board June 5 and urged the directors to fill his seat with a Black candidate. Reddit named Michael Seibel to Reddit’s board June 10.
"Not only are investors evaluating boards and companies, employees and customers are looking to boards and leaders to increase diversity and model inclusion," Taylor said. "In many companies, a future generation of talent is watching to determine if a company’s corporate mission and values indicate that people of color and from diverse backgrounds are valued."
To "build stronger, more diverse boards," Taylor recommended that companies ensure the list of appointments and all board succession plans include diverse executives; maintain a focus on competencies and abilities, "not just titles;" be open to individuals who have demonstrated leadership capabilities outside of traditional corporate positions; and build relationships with diverse, high-potential rising executives "to ensure a robust pipeline for the future."
Preparing organizations for the future
The report projects that by 2022, appointments of women to board positions will reach 50% among the incoming class of new board members. Almost half (40%) of director appointments in 2019 had digital or social media experience, which is an increase from 10% in 2016, indicating an "enterprise-wide importance of digital and cybersecurity," according to the report. Environmental concerns are also growing in importance, Heidrick & Struggles found. About 10% of new directors in 2019 had sustainability experience.
"So much is demanded of boards today, and the pressure is coming from all directions," Taylor said. "Boards are now expected to have expertise across really specialized areas — from digital transformation and cybersecurity to corporate reputation management and sustainability." The boards are currently "carrying out their advisory and governance responsibilities amid a global pandemic and economic crisis," and "doing much of it over video conferences," he said.
Taylor also noted that succession planning will remain one of the most important functions for a board, especially for the CEO role. "Boards need to treat this process as a strategic priority that aligns with the company’s strategy," he said. "To do this well requires adding new, diverse voices and expertise to their boardroom in emerging areas of risk and opportunity."