Quotas are a terrible way to promote board diversity. Companies should do this instead

Posted at 2:23 PM, Dec 04, 2018
and last updated 2018-12-04 16:23:59-05

The just-concluded 2018 elections have been referred to as a new “year of the woman,” as nearly 25% of all members of the next Congress will be female. That puts Congress one point ahead of S&P 500 boardrooms, where 24% of all corporate directors are women.

Neither number is impressive — and the pace of change remains glacially slow. The new Congress’s number of female members will have grown by just about 5% and boardrooms have grown their proportion of women directors by an average of 1.2% per year over the past five years.

California’s state legislature (female membership: also 24%) recently set quotas for female members on the boards of publicly traded companies headquartered in the state — hypocritically requiring the private sector to do better than the public sector has. That’s not the answer.

Viewed through the prism of our own experience as corporate directors, we think it’s high time for boards to become more diverse. Not because a law requires it, but because a variety of backgrounds, experiences and skill sets leads to stronger, more rigorous, and significantly more effective corporate governance. And more effective governance means better performance for all stakeholders.

In case you hadn’t noticed, corporate boards don’t really work all that well. What should be an assembly of the world’s top talent, bursting with intellectual and emotional intelligence, relevant experience, wise judgment and an ability to communicate and work through even the toughest truths instead remains something of a sealed inert system.

Phenomenally successful and powerful companies like General Motors and General Electric have suffered long, obvious declines with no apparent shifts in strategy until dramatic action and enormous write-downs were required. Alleged fraud at companies like Theranos play out under the noses of blue-chip boards.

And those are just the obvious failures. How many S&P 500 companies could do better if the go-along-to-get-along thinking that undergirds so many boardrooms is replaced by energetic skepticism and diverse viewpoints drawn from very different life and professional experiences? And how much more thorough and considered might a board’s decisions be if important constituencies of the company were better represented in boardrooms?

Change is like heaven — everybody wants to go there but no one wants to die. In like manner, boards talk about change and diversity but don’t think they need to aggressively pursue it. In fact, half of directors in a recent survey believe diversity is solely about satisfying some misplaced desire for political correctness.

And unfortunately, California’s one-size-fits-all quota system only reinforces that assumption, and will inevitably lead to a box-checking approach that will further damage board credibility and performance. What we need is for boards to be more responsive to today’s fast-changing social and economic landscape. Said differently, it’s likely to be a whole lot harder for 11 white male Ivy League graduates to perceive a variety of threats and opportunities on a company’s horizon than it is for a highly diverse board — by gender, ethnicity, experience and worldview — to do the same.

For boards with the courage to push this agenda forward, here are some specific thoughts on how to get started toward a more diverse and higher-performing boardroom:

  • Think about breaking the CEO monopoly on board seats. Yes, it’s great to have fellow CEOs in the room who understand what a corporate leader is going through. But no one needs 10 of them. Seeking more angular expertise sets for a board would elevate the level of discussion and question the status quo.
  • Grill your firm on how it recruits board directors. If all they’re going to do is give you a list of women directors already stretched thin from serving on multiple boards simultaneously, they’re not helping you drive your board’s performance. They’re engaging in the same box-checking California’s asking for.
  • Use blind resumes in your recruitment process to more aggressively pursue real meritocracy. Block out all the clues that give away gender and ethnicity and go purely for candidates that could make a difference in your board’s trajectory. Just be sure you’re not looking for a clone of who’s already in your boardroom.
  • Consider different evaluations for your next open director search. What if your board committed to recruiting the most emotionally intelligent qualified candidate it could find? Or perhaps set out to find a new director with a deep understanding of millennial employee recruitment, or next-gen social media platforms, or immigrant cultures in your service delivery areas?
  • Evaluate and implement team health and performance metrics for your board. How much do you trust each other? Which member is highest rated for effectiveness by your fellow directors, and how can you test candidates for the qualities that member brings to your boardroom?

There are dozens of ways to change the corporate boardroom monoculture. The recent election and the California legislation should serve as reminders that it’s way past time to pick a few and get started.