A Diverse Board Starts with Diverse Recruiting Practices

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Forbes magazine publisher Malcom Forbes once called diversity “the art of thinking independently together.” When it comes to having a diverse board of directors, Forbes’ words have never been truer. Boards thrive on diverse thinking, but this thinking only comes with diverse members. So how can you improve the diversity of your board? Here’s a hint: It starts with your recruiting practices.

According to Jared Landaw of Barington Capital Group, L.P., as quoted in a recent report published by The Conference Board, “Many CEOs are facing the most challenging business environment of their careers. Having a diverse group of directors to advise them on how to respond to issues and disruptions few have confronted before—including a worldwide pandemic, a lingering trade war, changing consumer preferences, and widespread protests over racial inequality—can be invaluable.” 

The Benefits of Board Diversity

The Conference Board concludes that a “cognitively and demographically diverse board is best equipped to perform its obligations and help a company compete, innovate, and respond to disruption in today’s challenging international markets.”

Moreover, the report notes that the work of a board is not over once it has assembled a diverse group of directors. To ensure a board reaps the benefits of diversity, it must foster a culture that embraces diverse insights and ensures they are incorporated into the decision-making process.

The Conference Board report also shares insights obtained from interviewing directors who served on the boards of these companies, both before and after changes were made to the composition of the boards. Among the key findings from the report, “Maximizing the Benefits of Board Diversity—Lessons Learned from Activist Investing”:

Cognitive diversity can yield many benefits: Directors who bring new skills, experiences, perspectives, and approaches to problem-solving enhance a board’s cognitive diversity. This can improve a board’s performance, expand its knowledge base, increase director independence and engagement, improve culture and decision-making, and enhance its ability to advise and oversee management.

There is not necessarily a correlation between cognitive diversity and demographic diversity: While it is commonly assumed that individuals who differ in demographic characteristics will bring new backgrounds and viewpoints to a boardroom, such benefits may be limited if the new directors have backgrounds similar to those of incumbent directors or were selected because they “fit in” well with incumbent directors.

For companies to fully harvest the benefits of a diverse board, they should recruit directors who bring a broad range of diversity to the boardroom. This includes diversity in their gender, race, and ethnicity, as well as diversity in their professional backgrounds, skills, perspectives, and approaches to problem-solving.

Cognitive diversity complements demographic diversity: Among other advantages, a demographically diverse board is more likely to represent the composition of a company’s employees, customers, and suppliers and can therefore provide a board with a better understanding of these key constituencies. This can help a board better anticipate and respond to the concerns of these parties.

While such insights can be invaluable, demographically diverse directors who also have strong professional backgrounds in areas needed in the boardroom may be better able to help a board incorporate insights into the context of a company’s business.

Culture in the boardroom is key: Boards may not fully reap the benefits of a more demographically and cognitively diverse board if new directors are uncomfortable sharing their insights or if their insights are not incorporated into the decision-making process. To ensure a board benefits from increased diversity in the boardroom, it must have a culture that embraces diversity and encourages the sharing and consideration of diverse perspectives…

Source: HR Daily Advisor

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