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Last month, the Alliance for Board Diversity (ABD) and Deloitte released the Missing Pieces Report, a multiyear study that reviews diversity on Fortune 100 and Fortune 500 boards. FEI Daily spoke with Deborah DeHaas, Vice Chairman and National Managing Partner at the Deloitte Center for Board Effectiveness and Linda Akutagawa, chair at the ABD and President and CEO, LEAP (Leadership Education for Asian Pacifics), about the risks of having a homogeneous board and how companies are going about bringing on more new, diverse board members.
FEI Daily: What are the biggest risks of not having a diverse board composition?
Linda Akutagawa: Numerous data sources show the positive impact diverse boards have on a company’s market and financial performance. Additionally, as the United States becomes increasingly more diverse, and companies are interdependent on a changing global economy, forward-thinking boards are determining ways to enhance diversity. Companies with more diverse boards will be better equipped to grow, innovate, and take and manage risk. Homogeneity on boards is risky because, it can lead to a uniform approach to problem solving, resulting in blind spots for new ideas.
Non-diverse boards are also risking increased pressure from investors, customers, even policymakers, and other stakeholders. The report shows that the number of Fortune 500 boards with over 40 percent diversity has nearly tripled from 54 in 2010 to 145 in 2018. This is due, in part, to the growing demand from stakeholders that company boards be composed of directors that reflect the diversity of the country’s population.
FEI Daily: So, we’re making progress?
Deborah DeHaas: There are multiple noteworthy points of progress in this year’s report. We are encouraged that the 2018 Fortune 100 Board representation is at all-time high of 38.6 percent compared to 35.9 percent in 2016, and that Fortune 500 board representation is also at an all-time high in 2018 at 34 percent compared to 30.8 percent in 2016.
It’s also encouraging that minority men show an increase in the rate of progress, nearly an additional 1 percent gain in just the last two years, compared to the total 1 percent gained over the course of the previous 12 years. And African American/Black women and Asian/Pacific Islander women made the largest percentage increase in board seats gained in both the Fortune 100 and Fortune 500 at 26.2 percent and 38.6 percent, respectively. While strong percentage increases, we should not lose sight that the raw numbers are still quite small.
FEI Daily: What stands out to you most about the study?
DeHaas: It is interesting that the growth in diversity seems to be led by Fortune 100 companies. As I said, the 2018 representation of women and minorities in the Fortune 100 has reached a high of 38.6 percent, and it is noteworthy that 46 companies achieved greater than 40 percent and 75 companies achieved greater than 30 percent diverse representation, which is hopefully a signal of what may occur more broadly in the Fortune 500 list in the future.
Despite some notable gains, women and minorities still remain underrepresented in the boardroom. Caucasian/White men hold 91.1 percent of Fortune 500 board chairs and 78.7 percent of lead directorships. While there have been gains in diverse leadership of such key committees as Compensation, Audit, and Nominating and Governance, there needs to be continued intentional efforts to increase the leadership roles of women and minorities in the boardroom.
FEI Daily: For the companies that have made the most progress, what are their tactics? What can other companies learn from them?
Akutagawa: What gets measured, gets done. That’s why, through the report, we’re advocating for improvements in women and minorities board participation by shining a light on the numbers. There are some steps that the ABD has identified for boards to consider to unleash the power of diversity in their boardrooms. First, expand the criteria of what backgrounds and experiences makes someone ‘board ready’ – don’t just look at CEOs and current and former board members.
According to the report, Fortune 100 companies, are “recycling” – rate at which individuals serve on more than one board – women and minority board members at rate lower than the Fortune 500. The largest companies are looking beyond the pool of current, diverse board members to bring on more new, diverse board members.
Recruit from non-traditional board candidate sources and review existing board recruitment policies, focus on retention of female and minority board members as much as recruitment, and invest in talent pipelines for now and in the future, to increase the availability of ‘board ready’ minority and women candidates.
Also, the board leadership role with the highest representation of women and minorities is the nominating/governance committee chair. We hope that having more women and minorities in nominating positions will accelerate diversity moving forward as they may be more keen to look at candidates from different backgrounds.