Why Modern Governance Demands Diversity and Inclusion

Dottie Schindlinger

The following blog is based on the latest Diligent Institute report, “A Few Good Women: Gender & Inclusion in Public Company Board Leadership.” The Diligent Institute is the think tank and research arm of Diligent Corporation, tackling governance issues through a global lens. For more information and to subscribe to receive research updates from the Diligent Institute, please visit diligentinstitute.com.

Diversity Is Something, But Not Everything

Over the last few years, women directors have made impressive gains in public company boardrooms. The proportion of women directors on Russell 1000 company boards rose from 19.6% in 2017, to 21.3% in 2018, to 24.3% last year. According to governance research firm CGLytics, European women directors saw even greater gains, comprising more than one-third of all board appointments in 2019, and France at near gender parity (42% women directors).

There is no question that progress on gender diversity in the boardroom is important – but just adding women to boardrooms won’t solve inequality. Creating a more inclusive modern governance structure requires directors to commit to ensuring every voice around the board table is heard and contributing equally.

What Gets Measured, Gets Managed

The Diligent Institute set out to measure the rates at which women are assuming leadership roles in public company boards, as a fair way to determine the level of inclusion of women in corporate board leadership. We examined data provided by CGLytics on nearly 6,000 public companies from around the world, including their directors’ gender and age, board tenure, number of boards, committee membership, and board and committee leadership roles.

Women's Participation in Board Committees

We confirmed that public company boards globally are still nowhere close to gender parity – only 22% of directors and 7% of board chairs and lead directors are women. While this wasn’t a surprise, as similar data has been widely reported, there were several findings in this report that did surprise us – happily, I might add.

For example, we learned that women participate in board committees at higher rates than their levels of board participation overall – 24% of committee members are women, and women are 21% of all committee chairs.  What’s more, the few women serving on public company boards are assuming leadership roles an average of 1.7 years faster than men.

Pace of Promotions to Board Leadership by Gender

We learned that women directors:

  • Tend to be younger than the men serving on public company boards
  • Bring specialized skills and expertise to the board, such as digital technology, “gig economy” business models, ecommerce, HR, corporate culture and ethics, and more
  • Are often recruited specifically to fill a specific committee or leadership role aligned with their unique skill sets, such as to launch a new Ethics Committee or bring a better understanding of human capital management to the Compensation Committee
  • Are often brought in after corporate crises (for example, after the termination of the CEO for reasons of misconduct) to assist in a corporate turn-around, to help improve the company’s reputation, and reduce risk

It has been proven time and again that diverse teams perform more effectively, and the boardroom is no exception. With more pressure on companies to strategically transform, it is imperative to have more than only “a few good women” play a role in achieving the modern governance essential to long-term success.

Four Steps to Build Your Best Boardroom

Diversity for diversity’s sake is not helpful for anyone; but companies should take a thoughtful approach to board composition. Directors should have the perspectives and skill sets needed to align with the strategic goals of the company in order to unlock the competitive advantage a strong board should provide.

1. Consider the skill sets you’ll need for the future

Boards should create a succession plan and supporting candidate pool that reflects a proactive approach to the providing directors with the skills the company needs to navigate our disruptive world. There is no “one perfect board member,” but a gap analysis can be helpful in identifying the experience and competencies represented – and missing – in your board room. By expanding the analysis to include the full range of skill sets sought, as well as the experiential, demographic and personal attributes that form diverse perspectives, boards can act with greater awareness.

2. Commit to evaluations and strategic board refreshment

A board’s inability to refresh itself is often a root cause behind a lack of diversity, innovation, and growth. And it’s reached a high-water mark; according to PwC research, 49% of directors surveyed said that someone on the board should be replaced.  A key lever is the board evaluation. Boards recognize this should be more than just a check-the-box exercise but are often slow to move. In fact, despite being unhappy with many of their peers, 28% of directors in the PwC survey said their board made no changes following board evaluations. It takes true leadership to have tough conversations, particularly around diversity, but not forcing change when needed could have far greater consequences for the board, the company and its stakeholders.

3. Measure inclusion as well as diversity

Diversity is only part of the equality equation; inclusion is as important. Examine the diversity of your board’s committee chairs, lead director and board chair. Take note of how new directors, particularly first-time directors, are on-boarded. Board chairs in particular should be aware of how all directors are involved in the decision-making process and take care to ensure all voices are heard and accorded respect, while dissent and issue debates are strongly encouraged.  Multiple perspectives are an advantage and a hallmark of strong modern governance.

4. Cast a wider net and recruit differently

According to Deloitte, the most popular source for recruiting new board members remains referrals from existing board members. The trust that comes from this friendly verification is certainly important when initially vetting candidates, but it often introduces an unconscious bias and the tendency to select people with that look and think like us. By deepening your candidate pool and looking outside your own networks, you are likely to find highly skilled people, perhaps with atypical backgrounds, but with the experience to add significant value to your board.

The good news is there are now more tools at your disposal than ever before. Connect with resources like theBoardList with its growing network of qualified female executives, and diversity organizations, like WomenCorporateDirectorsLatino Corporate Directors Association or Ascend Pinnacle. Or broaden your search even wider and use the NACD & Diligent Nom-Gov app. With this solution, you can search for potential candidates based on hundreds of specific criteria across gender, skill set, location and expertise.

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Dottie Schindlinger

Dottie Schindlinger is the Executive Director of the Diligent Institute, the governance think tank and research arm of Diligent Corporation. As a recognized expert in the field, Dottie promotes the intersection of governance and technology. She is the co-author of Governance in the Digital Age: A Guide for the Modern Corporate Board Director, 2019, John Wiley & Sons Publishers, and is creator and co-host of The Corporate Director Podcast.

Dottie was a founding member of BoardEffect, a board management software platform launched in 2007 focused on serving the needs of healthcare, higher education and nonprofit boards, acquired by Diligent in 2016. Prior to BoardEffect, Dottie spent 15 years working in a variety of governance roles, including as a board support professional, consultant, trainer, board member and senior executive. Dottie serves as the Vice Chair of the Board of the Alice Paul Institute, and is a Fellow of the Salzburg Global Seminar.