A company’s board of directors is responsible for strategizing and supervising the organization’s direction. Diversity among board members is an increasingly important corporate necessity that can promote accountability and compliance at the highest level. Having a diverse board that adequately reflects the senior management team, employees, shareholders and overall community can positively affect a company’s culture and bottom line.

Multidimensional board diversity should include both social diversity (e.g., age, race and gender) and professional diversity (e.g., skills and experiences). Diverse boards are more equipped to navigate complex business decisions and can better consider the implications of such decisions.

This article discusses the benefits of board diversity and how organizations can recruit board members with diversity in mind.

Benefits of Board Diversity

Given boards’ tremendous responsibility and decision-making power, there is corporate value in maintaining an intentional and continuous commitment to diversity. Diverse boards bring a valuable range of outlooks and opinions and can provide many benefits to their respective organizations, including:

  • Additional perspectives—A diverse board can better meet the needs of an organization’s diverse set of clients, customers and stakeholders. Various perspectives can help tackle ideas from new angles, allowing fresh insights to emerge and disrupt common thinking patterns.
  • Improved corporate governance procedures—The board is responsible for establishing a system of rules, practices and processes by which the company is directed and controlled. With diversity at the forefront, corporate governance practices can become more inclusive, positively impacting company culture and keeping pace with ever-evolving markets and consumer bases.
  • Greater conflict resolution capabilities—Differing backgrounds and opinions can be a catalyst for expanding viewpoints and improving decision-making processes. Diverse professional and personal backgrounds may also be beneficial in resolving any workplace disagreements that arise.
  • Enhanced business practices—A diverse board with a mix of genders, ethnicities and career experiences is less likely to succumb to groupthink or dismiss new threats to a company’s business model. Since they can better identify opportunities to promote long-term growth, diverse companies are also more likely to experience higher financial returns.
  • Bolstered risk management tactics—A lack of diversity can open organizations up to complex litigation and corporate liability issues. Since diverse boards tend to have better risk management and decision-making skills, such liabilities and risks may be avoided or minimized.
  • Higher engagement levels—Implementing improved diversity practices can prevent the board from becoming stagnant by refreshing core skill sets and challenging potentially complacent board culture.
  • Stronger compliance measures—Over the past few years, both federal and state regulators, as well as a major stock exchange, have developed standards regarding diversity and inclusion expectations for organizations. Moving forward, organizations will have to account for board diversity in order to remain compliant with various laws and standards.

How to Recruit With Diversity in Mind

After an organization determines it may lack diverse viewpoints within its board of directors, it should critically examine and improve upon how board members are identified and recruited. While there is no easy solution to increasing board diversity, here are steps organizations can take to improve:

  • Create more transparent and objective criteria for board positions. Organizations should focus on the skills the board needs rather than the skills it currently provides. Boards can drive skill-based recruitment by creating a board matrix to identify and fill in potential gaps.
  • Implement formal performance evaluations for board members. Evaluations can create comparable data for identifying, disciplining and/or removing underperforming board members, thus establishing a culture of continuous engagement and improvement.
  • Avoid replacing “like for like.” Boards tend to instinctively replace existing members with candidates who have similar experiences to their predecessors. Diverse recruitment strategies should identify which skills are actual priorities when filling open positions.
  • Develop a pipeline of diverse board candidates. Organizations should actively create opportunities to connect with and mentor potential board members, looking beyond existing business contacts to find diverse perspectives.

Overall, it’s clear that a socially and professionally diverse board can help an organization effectively navigate challenges and improve its company culture, all while mitigating possible risks. For more risk management guidance, contact us today.

This Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2021 Zywave, Inc. All rights reserved.