Board diversity, equity and inclusion (DEI) have become a top priority for boards due to the new guidelines from organisations and stakeholder pressures. There are 5 common barriers to board diversity and 10 ways to overcome these barriers. The following information is being shared from OnBoard, to download the complete guide click here.
THIS ARTICLE’S KEY TAKEAWAYS:
- Board diversity, equity, and inclusion (DEI) have become a top priority due to new guidelines from organisations and stakeholder pressures.
- Lack of board turnover, traditional recruitment practices, implicit biases, lack of development pathways, and lack of board evaluations are often the top barriers to diversity.
- 10 ways to increase board diversity include evaluating the current state of your board, establishing term limits, leveraging annual evaluations, expanding the board, leveraging multiple sources of diversity, measuring progress, creating an advisory board, utilising committees, setting ground rules, growing diversity in succession planning.
Why Diversity Matters
Diversity, equity, and inclusion (DEI) have always been important in the boardroom. But today, with new guidelines from organisations such as Nasdaq, BlackRock, and Goldman Sachs – as well as increased pressure from stakeholders – increasing board diversity has become a top priority.
We are beginning to understand diversity’s benefits. The Australian Government’s Equal opportunity and diversity overview notes that diversity can be good for business and lists the potential advantages of a CALD (culturally and linguistically diverse) workplace.
The good news is that Australian businesses are making progress. The Australian Institute of Company Directors’ (AICDs’) data shows, for example, a steady increase in female directorships on ASX 200 boards. In November 2021 the figure was 34.1%. It’s a promising number but of course gender diversity is only one part of the bigger picture.
Top Barriers to Diversity
To see statistics from the 2021 Board Diversity Index, click here. Overcoming a lack of diversity often boils down to resolving five critical challenges:
1. Lack of Board Turnover
On most boards, vacancies usually only occur due to retirement, death or voluntary exit. That means directors often sit on their boards for extended periods. This makes the board recruitment for new board members rare, meaning the opportunity to increase board diversity is also rare.
2. Traditional Recruitment Practices
Many boards recruit new members is by tapping into existing directors’ professional networks. But often, our professional networks are composed of people who look like us.
Boards in some organisations recruit from their membership. This is a common practice in associations. By doing this, again board members are less likely to be diverse.
3. Implicit or Underlying Bias
Some boards think improving diversity means making sacrifices. For example, they may think that recruiting a diverse candidate means they’ll miss an opportunity to add someone with the ‘right skills.’
The reality is, there are many qualified, engaged candidates from underrepresented groups. And rigid ideas about the ‘right skills’ or priorities illustrate the inherent limitations of a non-diverse board.
4. Lack of Development pathways for Board Experience
Boards often seek new directors with C-suite and board experience. However, underrepresented groups often lack such experience. There must be pathways for professionals to rise the ranks in order to increase diversity and board performance.
5. Lack of Board Evaluations
Many boards utilise annual employee evaluations however, very few utilise annual board evaluations.
This is a missed opportunity to remove disengaged, under-contributing members and ensuring its members have an appropriate mix of skills and experience.
10 ways to increase Board Diversity
The following 10 ways can be used to build your organisations framework for increasing board diversity.
Note: the information on this page is in not advice, the information is general in nature and you should consider your own boards’ circumstance, agenda, goals and position before taking action. View the diversity board ideas below:
1. Evaluate Your Current State & Set Goals
Take an honest look at your board’s current makeup in terms of skills, backgrounds, experience, and diversity. Consider other factors, including the composition of key stakeholder groups including shareholders, customers, employees, community members and more.
Then, compare your current state to your goals to identify gaps. These gaps are where you should focus your recruitment efforts.
At Greenfields Recruitment & Search we connect company secretary leaders with organisations who require company secretary services. We can utilise your company goals to find specialist talent that is aligned with your company needs.
2. Establish Term Limits
One practical way to ensure board seats open up on a regular basis is to establish term limits.
The ASX’s Corporate Governance Principles and Recommendations do not specify term limits but note that “the board should regularly assess” the independence of “any director who has served in that position for more than 10 years.
3. Leverage Annual Evaluations
Annual board evaluations are critical for rooting out ineffective board members as well as those whose skills no longer meet your organisation’s needs.
Create an assessment process that includes feedback from peers.
4. Expand the Board
Revising your board structure and considering adding new seats to the board can bring more diversity in experience and background.
5. Leverage Multiple Sources of Diversity
Be you’re also looking for diversity in terms of factors including: gender, ethnicity, age, professional experience, board tenure, location, cultural experience and more.
6. Measure Progress
The late management consultant Peter Drucker is often quoted as saying “what gets measured gets managed.”
Board’s annual evaluation to ensure you’re staying focused and holding the board accountable.
7. Create an Advisory Board
Advisory boards are usually created to focus on a specific initiative or new market. Typically, advisory boards are less rigid than boards of directors, and they aren’t involved with governance. As such, you’re less likely to encounter resistance when recruiting people who don’t bring extensive board or C-suite experience.
Advisory board members also create a pathway to becoming a board member. As if the advisory board member joins the board, they’ll already have further understanding of the business and have communication with the board to ensure a smooth transition.
8. Take Advantage of Committees
Today, three-quarters of S&P 500 boards have at least one committee beyond the three core regulatory committees (audit, compensations, and nominating and governance). Consider creating a dedicated Diversity, equity, and inclusion (DEI) committee.
9. Set Ground Rules
Create a boardroom environment that allows for all members to comfortably and confidently collaborate and share their diverse viewpoints. Setting ground rules that are assessed and adjusted annually (or when necessary) is a great start. E.g.
- no interruptions except by the chair
- disagree in a respectful, non-threatening manner
- consider potential unintended consequences before making remarks
10. Grow Diversity through Succession Planning
Diversity should be at the core of all your succession planning efforts. E.g. establish a nominating and governance committee and avoid the trap of renominating directors by default.