Recruiting women and candidates from diverse racial and ethnic backgrounds to serve on corporate boards is a top priority for directors of public companies, according to global research by two organisations that promote better governance to create long-term shareholder value.
Of 102 directors surveyed six months ago by the Society for Corporate Governance and Deloitte’s Center for Board Effectiveness, 94% said their boards were looking to improve diversity, with 61% indicating that closing the gender gap was the top priority. Forty-eight per cent said their companies were looking to increase racial and ethnic diversity, whilst 43% said they are focused on recruiting directors with more varied professional experiences. Respondents could list up to two top priorities.
Board composition and diversity are also important to shareholders. It was the most common topic shareholders asked to discuss with management or the board the previous year (54% of respondents), ahead of financial performance (47%).
“I think there has been a significant shift in a positive way,” said Sarah Ghosh, FCMA, CGMA, finance director at SweetTree Home Care Services, a healthcare company in London, and a member of the Association of International Certified Professional Accountants’ board of directors.
“The gender mix is increasing, diversity in race and ethnicity are improving, and professional skills are broader,” she said. “Some of the roles we are seeing now didn’t exist 10 to 15 years ago, and five to ten years down the road, there will be some new roles we don’t have today, especially in the areas of digital technology and artificial intelligence.”
But much work is still to be done, Ghosh said. A majority of survey respondents would agree. More than half of them said they are only moderately effective (48%) or not effective (7%) in refreshing the board’s composition regularly.
How to improve board diversity
Improve recruitment methods. Just 8% of survey respondents said they solicit suggestions from organisations focused on increasing board diversity. The most popular source for recruiting new board members remains referrals from existing board members (77%). Seventy-three per cent said they have used search firms.
To truly increase diversity, boards must look beyond their existing networks and actively create new opportunities for women, people of colour, young leaders, and other typically underrepresented groups to serve, said Susan Richards, co-chair of the board of directors for Invest Ottawa in Canada, who is a chartered professional accountant and a certified management accountant.
“In our experience, you have to reach out beyond your network,” Richards said. “The issue with networks today is that they are so male-dominated. Women are not part of those referral cycles.”
In the past year, the Invest Ottawa board has taken several measures to recruit female director candidates and built a pipeline of diverse business leaders in their city including more women. The board started by creating guidelines on gender diversity not just on the board, but also for the business development programmes Invest Ottawa offers, Richards said. The board also created a diversity committee.
“A policy on its own will collect dust unless there are people charged with ensuring we move the needle,” said Richards, who is the first female co-chair for Invest Ottawa. “As co-chair I had more ability to move this agenda forward in the organisation than I would have had otherwise.”
Establish training grounds. Invest Ottawa also established advisory groups that could serve as a training ground for emerging leaders who could potentially serve as directors in the future, or at least provide an expanded network to call upon for future board placements, she said.
Boards have an obligation to be diverse, Richards said. “We should hold ourselves accountable to having a broad view and different perspectives and have an open mind to the kinds of experience we’re looking for.”
Consider new skillsets. Recruiting directors with industry-specific experience was a priority for 41% of directors surveyed, followed closely by recruiting new members with experience in digital and technology strategy (34%) such as artificial intelligence (AI), cryptocurrency, and social media.
As companies grapple with new innovations such as AI, Ghosh said she hopes boards will also be more open to diversity in age.
“One of the challenges is the people they’re looking for are more experienced or already have had a number of significant roles in their careers,” she said. “But there is real value in considering people across the younger generations. Their skillsets are equally as valuable as companies grapple with the changing technology landscape.”
As companies expand their use of technologies such as AI and big data, boards will also face important decisions on their inherent ethical issues, Ghosh said, and this is where having board members with that experience will be valuable.
“Boards will need to be able to identify people with the skills and industry experience who can broadly understand the impact of AI on their company,” Ghosh said. “There are ethical questions becoming more prevalent at the board level about data security, how they use data to communicate with people, who they’re collecting data from. Setting policy around that can be challenging, but it’s up to boards to raise some of these ethical debates.”
Consider neglected skillsets. Survey results suggest that finding directors with experience in marketing and human resources are low on the list of boards’ priorities.
“These are two areas that are often overlooked, but for boards, these should be key areas of importance,” Richards said. “Marketing expertise inside an organisation tends to benefit many areas, including communication with external stakeholders.” Adding directors with marketing and human resources experience could also help diversity because these tend to be areas where women are well represented, she said.
Directors with a marketing background could also help guide policies around the use of social media, both by boards and by employees, Ghosh said. It’s an area that can impact perception by shareholders and customers and company culture, but one-third of directors surveyed said either their company didn’t have a social media policy or they didn’t receive any training on a social media policy.
Nearly two-thirds (63%) of board members said they were neither expressly permitted nor prohibited to comment on the company and industry on social media, and 73% said the board hasn’t discussed or received data on how customers, employees, or board members are using social media.
“Social media in a company is becoming more of a point to control,” Ghosh said. “With recent generations, it’s second nature for them to tweet or Instagram everything they do in a day. Setting policy around that is challenging and, again, ties into how we are using people’s data and making sure we are maintaining privacy, and the ethics around that.”
— Samiha Khanna is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at Sabine.Vollmer@aicpa-cima.com.