Board Composition and Diversity: Where to Start

Nicholas J Price
5 min read
Asset management companies like BlackRock and State Street have been steadily applying pressure to diversify boards. Their motivation is well intentioned and they're not alone in their philosophy that boards with greater diversity tend to perform better. In addition to better performance, companies that are willing to break the mold and appoint more women directors are also likely to hire more female top executives.

On the surface, the concept of opening the boardroom to people from more diverse backgrounds shouldn't be that difficult. What makes it challenging is that the process that many companies use for recruiting new board members and succession planning is rooted in steep tradition and longstanding practices. Taking steps to increase diversity means change. It also means that either some well-liked people will have to step down or the board will need to grow. Another challenge in diversifying boardrooms is to refresh the board with new talent without giving the impression of tokenism.

Board refreshment is clearly the wave of the future. When we think about diversity as it relates to race, economics, gender and ability, it can be difficult to know how or where to get started.

Refreshing your board's composition and creating diversity within your board doesn't have to be that difficult. Advancements in technology have brought board management and governance tools that make the job of adding diversity and composing fresh, qualified boards almost as easy as turning on your computer.

Revisit the Selection Criteria for Your Board

Whenever you're trying to create change, it's a good idea to review your current processes to identify where such processes are weak or need to change.

In the corporate world, a board director candidate's professional achievement, along with their having a high status on the career ladder, would make someone a strong contender for a board position. In addition, nonprofit boards usually expect board candidates to bring some wealth of their own to the organization.

While these issues and qualities have made for good candidates in the past, nonprofit boards typically also look at a person's net worth or their ability to bring philanthropic contacts to the organization.

These types of mindsets limit your board candidate recruitment pool. It's important to consider that the number of women working in the CEO position in Fortune 500 companies has remained around 6% for many years running, which means that companies are regularly overlooking some valuable females in corporate leadership. Women and people of color have faced barriers that others haven't. In fact, certain communities have been systematically deterred from building wealth of their own or being able to climb the corporate ladder.

Obviously, the same recruitment strategies will yield the same results, so it's time to let go of longstanding practices and take a modern approach to board candidate recruitment and succession planning to keep your board adequately refreshed. When you change up your strategy, you'll be getting a much larger pool of qualified candidates.

Make Room for New Directors

Even if your board doesn't have any upcoming vacancies, it's never too early to plan for the vacant board seats that will eventually occur. Add board size as an item to your agenda and spend some time discussing what the proper size of your board should be and work toward “right-sizing”  it.

A simple way to do this is to add a board seat to accommodate a board member with a more diverse background. Some may see this as tokenism, which is why board directors need to spend time discussing the proper size for their board. Another easy way to open up board seats is to add term limits if you don't already have them. Boards also need to consider the maximum retirement age at which board directors are still likely to be effective at their jobs. Moving forward, new board directors should be informed that no board seats will automatically be renewed, and that board talent will be based on the needs of the organization.

Expand Your Reach Beyond the Usual Candidates

There's no question that a board candidate's reputation is important. However, many other things are just as important in narrowing down the best talent. As the issue of a board director vacancy comes up, it's common to hear existing board directors ask each other who they know that can fill the role. While that's not necessarily a bad approach, it limits the pool. There are additional ways to identify industry experts, technology specialists and people who have experience working with activist investors.

By reaching out to new networks, nominating committees will get a totally different group of recruits. Technology makes easy work of finding and implementing those networks.

Modern governance is the practice of empowering state, provincial and local government leaders with the technology, insights and processes to fuel good governance to thrive in today's fast-paced digital age.

The modern approach to succession planning is a proactive approach that consists of annual board self-evaluations and a digital process for performing a board candidate search. A proactive approach to succession planning leads to stability in leadership and overall confidence in the board's ability.

Often, the board self-evaluation process isn't nearly as effective as it could or should be. Diligent's Board Evaluation Tool positions boards to get their evaluations done early and build on past data and successes. Boards can easily set up various question types and monitor submission of the evaluations completely online. The tool makes it ultra-easy to review the results because it produces visual graphics and Excel reports for further analysis. Automatic averages reporting is available to simplify the analysis process. Surprisingly, only 34% of boards have a written succession plan. Diligent's evaluation tool can change that percentage quickly.

Another tool that advancements in technology have brought is Nom Gov by NACD and Diligent. Nom Gov opens up your pool of potentially qualified board director candidates from a handful of potential candidates to over 125,000 possibilities. Nom Gov provides nominating committees with complete profiles of candidates across the globe. Bios give nominating committees info on talent, skills, expertise, diversity, gender, age, ethnicity and more. Nom Gov makes it possible for boards to create a large pool of candidates in less time, which gives them more time to home in on the right board directors for the company.