The Business Benefits of Board Diversity

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Tips to move from intention to action.

The benefits of diversity and inclusion within organizations are well-documented. Diverse organizations and teams outperform non-diverse teams in almost every form of measurement, from creativity to financial outcomes. The same principle can and should be applied to Boards of Directors, who bear the ultimate responsibility for leading the organizations they serve.

Diverse boards: 

  • Create more inclusive policies, practices, and behaviors—and value different perspectives—when conducting board business and developing strategies.
  • Can better understand and meet the needs of increasingly diverse communities.
  • Foster a more inclusive culture throughout the organization, resulting in better outcomes: more effective/creative solutions; higher levels of engagement; and deeper, more authentic partner relationships.
  • Help recruit and attract more diverse leaders at every level.
  • Help their organizations drive innovation and increase market share.

Consider these facts published by Harvard Business Review:

  • A 2015 McKinsey report on 366 public companies found that those in the top quartile for ethnic and racial diversity in management were 35 percent more likely to have financial returns above their industry mean, and those in the top quartile for gender diversity were 15 percent more likely to have returns above the industry mean.
  • In a global analysis of 2,400 companies conducted by Credit Suisse, organizations with at least one female board member yielded higher return on equity and higher net income growth than those that did not have any women on the board.

Unfortunately, boards of directors in the for-profit sector are overwhelmingly homogenous, and are missing out on all of these business and social benefits despite increasing pressure from shareholders and investors to diversify. Women currently occupy only 18 percent of board seats at the biggest companies, and only 4 percent of board chairs are women. The stats for racial diversity are even more grim, with some studies showing that a mere 15 percent of board seats at the top 200 S&P 500 companies belong to racial minorities.

The nonprofit sector mirrors this lack of diversity at the board level. The percentage of people of color in nonprofit board seats has remained under 20 percent for the last 15 years. Unfortunately, there’s no sign of this changing, despite growing awareness of the strategic, financial, and social benefits of diversity.

Boards that aren’t diverse aren’t completely fulfilling their responsibilities because they are not operating at full potential as a governing body. A commitment to diversity—and the action behind that commitment—must start at the top.

Meeting the Challenge

Earlier this year, Koya Leadership Partners conducted a study called The Governance Gap: Examining Diversity and Equity on Nonprofit Boards of Directors to learn more about board composition and diversity. While disappointing, the results were not surprising given national trends. The survey showed that 96 percent of the participating organizations believe that diversifying their boards is a key objective, yet just 24 percent had taken any steps to increase levels of diversity. 

There are a variety of factors behind this lack of action, but one challenge was clear: While boards clearly understand the importance of diversity, their members lack the knowledge, skills, resources, and commitment necessary to bring about measurable change. 

Boards can and must lead the charge when it comes to diversity. Here are a few ways boards can immediately begin taking actionable steps towards diversification:

  • Take a step back. Have an honest conversation—at the board level—about why diversity is important to your organization. Board members should be aligned on the benefits of diversity, why it’s so valuable, and what they’ll do to become more diverse at every level of the organization, starting with the Board itself.
  • Commit to action. It’s not enough to discuss diversity. Boards must commit to taking action. As boards begin the conversation around diversity, they also must commit to measurable change. Be clear about the action steps you’ll take to reach your diversity goals and document them. 
  • Analyze your existing board. Many boards have not taken the first step of examining their own composition, looking at various forms of diversity such as race, gender, skills, experience, background, etc. This is a key first step in identifying whether a board is diverse, determining how it needs to diversify, and developing a recruiting strategy to achieve diversity goals. Find a board matrix online or make your own that lists each board member, their demographics, and other key factors, including relevant experience, skills, and attributes. Many boards find this to be a useful exercise that clearly demonstrates who is represented on the board and who is not. 
  • Go out of network. Most boards struggle with recruiting, but this is crucial to increasing board diversity. Per the Governance Gap survey, more than half of board members said their toughest hurdle was a lack of access to qualified candidates when working to recruit diverse members. This is likely because board members tend to recruit from their social circles, which invariably results in homogeneity. Sociological studies demonstrate that most people build a network of “people like them” in terms of race and socioeconomic status. To boost diversity, board members must go beyond their networks to identify and recruit talented, passionate, committed, and diverse board candidates.
  • Continue to engage and learn. Organizations would be well-served to adopt various activities to promote and embrace diversity. These could include: undergoing training with diversity consultants, speaking with diversity experts and groups about best practices, and ensuring that board meeting times aren’t burdensome for board members without flexible jobs. Whatever the specifics, all board members must buy into the vision for diversity and inclusion and take actionable steps to reach their goals.
  • Hold the board accountable. Boards must hold themselves accountable for the role they play in building diverse organizations. So it’s not enough to simply talk about diversity or lay out some goals. Board members must task themselves with achieving those goals and hold themselves accountable. 

Diversity is a key performance factor, which means it’s ultimately board members’ responsibility to create diverse, inclusive organizations and environments. The steps outlined above can help boards move from good intentions to measurable action on the path to becoming diverse. 

Molly Brennan is founding partner at leading executive search firm Koya Leadership Partners. Brennan has identified and placed exceptional leaders for a range of clients, including Amnesty International USA, Habitat for Humanity, Sierra Club, and Natural Resources Defense Council. Her areas of focus include leadership, retention, and diversity, equity and inclusion initiatives. She recently authored a white paper, The Governance Gap: Examining Diversity and Equity on Nonprofit Boards of Directors. Koya Leadership Partners has been named to the Forbes list of America’s Best Recruiting Firms for two consecutive years (2017 and 2018). Focused exclusively on mission-driven clients, Koya is guided by the belief that the right person at the right place can change the world.