How to Build Diversity on the Board of Directors

Rick Hoel
6 min read

It is no surprise that a successful company will typically be supported by a solid, high-performing board of directors, especially when it comes down to how diverse the board is. Among other things, a well-run board will take the lead in setting and adjusting strategy, play a strong role in risk management and guide its company in recruiting top talent.

Over the past 15 years, there have been significant changes in the factors perceived as critical in creating a successful board. There is no doubt that the global financial meltdown, a host of corporate scandals and the increase in cybersecurity threats have helped put a greater focus on board composition. While boards will always look to successful former corporate leaders and executives with management, financial and risk mitigation experience, as well as industry-specific expertise, there is growing recognition of the importance of bringing diversity to the board.

Recent studies and research have established that, compared with more homogeneous boards, boards with a more diverse composition:

Building diversity on a board of directors isn't easy, but it's vitally important. Diversity brings in new thinking, insights and perspective about consumers, markets and business practices. A lack of diversity represents a missed opportunity. Boards that are too culturally homogenous can wind up with blind spots and miss important cues about market trends or internal problems. That's why a highly accomplished and diverse board ' and that means including more women, more people of color and more people from a wide variety of ethnic backgrounds ' is so critical, particularly today, when businesses compete on a global scale.

What are some steps boards can take to improve their diversity? Diversity on the board of directors can't be created out of the blue or in a vacuum. In building diversity, boards need to take a holistic approach and to ensure that certain foundational processes are in place first.

Building Diversity: Fundamental Director Responsibilities

As an initial step in building diversity on the board of directors, boards should deliberately outline the responsibilities of current board members and make sure that board members are addressing fundamental board issues. These include 'traditional' responsibilities (e.g., strategy, risk, compliance, recruiting and C-suite oversight) as well as more specific 'modern' requirements (e.g., social responsibility and cybersecurity). The board needs to assure that these minimum requirements are being met.

Determine company needs during the next three- to five-year horizon

The board should take a hard look at the company's markets and the anticipated competitive challenges that it will encounter in the next three to five years. Based upon this assessment, the board needs to develop an outline of the particular expertise that will be required on the board to meet these challenges. Of particular importance in this assessment is the anticipated disruptive impact that increasingly rapid technology advances will have on the company's competitive edge and plan accordingly.

Define future board types to meet company needs

Based upon the board's three- to five-year projections, it is important for the board to discuss how it can better perform to meet those needs. As part of this conversation, the board should create a picture of the characteristics that future board members should possess. What skills and experience are required? What should future board members' temperaments be ' challenging, proactive, supportive, etc.? How, specifically, can future board members improve their performance?

Establish policies for board renewal

It is obvious that a board that fails to refresh its membership will likely fall into some bad habits. Repetition of strategies and discussions should be disrupted with fresh thinking on a regular basis. The board should consider best practices to combat this thinking fatigue:

  • Determining that you have a strong board chair who will assure that there is effective follow-through on proposals;
  • Considering board member term limits; and
  • Establishing consistent periodic performance reviews for board members.

Creating an environment with expectations for regular board refreshment can open the door for both meeting the goals described above and broadening opportunities for building a more diverse board.

Create a succession plan

A clear plan for future succession of board members can open the door to a more strategic recruiting approach, one that can eliminate surprises and encourage a disciplined recruiting process. An effective succession plan can help eliminate the need to find new directors quickly and promote a rigorous vetting process. Such a plan should take both retirements and performance issues into consideration.

Set board diversity goals

Setting diversity goals is a key step for a board to firmly establish its leadership role in the company. These goals should be tied into the processes described above and clearly communicated to relevant internal and external constituencies. Equally important, of course, is the board holding itself accountable in following through on its goals.

Expand the board's search pool

Expanding talent pools to include a broader range of diverse candidates will assist boards in attracting and retaining key talent. In order to accomplish this, boards first need to look inward and to identify natural bias. Often, familiar recruiting tools become imbued with tendencies to select board members who are similar in temperament and background to existing members, candidates who may not be inclined to challenge the status quo. Boards should be willing to move beyond familiar recruiting strategies, which often rely on narrow and reinforcing criteria. Boards should consider implementing forms of anti-bias training into their recruiting process to help expand their search parameters.

Monitor results of diversity efforts

To assure that diversity goals are being met or to understand the reasons such efforts are not succeeding as planned, boards should monitor progress on a quarterly or semiannual basis. These efforts can include:

  • Tracking diverse board member retention rates;
  • Conducting exit interviews of departing board members to pinpoint areas for improvement; and
  • Communicating with and surveying relevant constituents, such as company leaders, key customers and shareholders, to determine how the board's efforts to promote diversity are perceived.

Final Words on How to Build Diversity On the Board of Directors

Real change in board culture and its composition will not happen immediately. Building the diversity on boards of directors requires patience and commitment over the long term. For all of the reasons cited above, however, dedicated effort in building a diverse board will pay significant dividends and lead to more fulfilling organizational outcomes.

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Rick Hoel

Rick is an international business attorney and currently sits on the Board of Directors and provides general counsel, risk management and compliance services to foreign companies entering the U.S. market including Power Stow America's Inc., a subsidiary of Power Stow A/S in Denmark, the world leader in the supply of tracked conveyor systems to the airline industry. '

Rick has been a partner in a U.S. based litigation firm and has a long history of international in-house counsel experience working with some of the largest multinational companies in the world. His industry experience includes work in the automotive, global telecommunications and electronics, intermodal transport, airline and facility management industries.

Rick is an avid reader and writer with published articles and books on a wide range of topics, including intercultural communication, technology and the practice of law. Rick has lived overseas and works and travels extensively throughout the world.