What companies can do to speed up board diversity
In the wake of the Black Lives Matter protests in the summer of 2020, companies promised to make their boards more diverse. | FangXiaNuo via Getty Images Companies promised to make their boards more diverse. Here’s how to actually do it.
After a national reckoning in the summer of 2020 following the police killing of George Floyd and the subsequent Black Lives Matter protests around the country, public and private companies alike vowed to add Black directors to their corporate boards. Some promising developments suggest greater board diversity could actually happen. There are also other ways companies could hurry it along.
Nasdaq submitted a proposal in December that would require companies listed on its exchange to report their board diversity and have — or at least explain why they don’t have — at least one person who identifies as a woman and one person who identifies as an underrepresented minority or LGBTQ person on their board. Investment companies BlackRock and State Street are asking companies they invest in to report their board diversity and improve it. Most notably, California passed a law requiring businesses headquartered there to have at least one board member from an underrepresented community by the end of 2021.
The diversity of a company’s board is important for a number of reasons.
A company’s board of directors is in charge of representing shareholder interests and making sure the company’s financials are accurate, as well as picking the company’s CEO and holding that person to task. The board sets the tone for the whole company, and its members serve as an example for what the company stands for.
“Employees, customers, and investors are diverse,” Nell Minow, vice chair of Value Edge Advisors, a consulting firm specializing in corporate governance issues, said. “If the people playing this essential role are not diverse, how are they going know what they need to know to do their job? They aren’t.”
Indeed, a board affects how a company functions and how well it performs. A number of studies, including ones by McKinsey & Company , BCG , and Deloitte , have shown a correlation between diverse leadership and a company’s financial performance. Stocks for socially responsible companies that abide by certain criteria for environmental, social, and corporate governance, or ESG, are outperforming their peers .
“Now that we know diverse boards perform better financially, they have a fiduciary responsibility to diversify,” Stephanie Lampkin, founder and CEO of diversity analytics and hiring software company Blendoor , told Recode.
Despite all this, boards are too often woefully white and male. Nasdaq found that in the six months prior to its diversity proposal, 75 percent of companies listed on the exchange wouldn’t have met the proposal’s arguably easy diversity requirements.
Women hold only about a quarter of board seats at the...