The Missing Pieces Report has shown an increase in diversity on the boards of America’s largest companies. Deb DeHaas, Vice Chairman and National Managing Partner, Center for Board Effectiveness, Deloitte, explains why more needs to be done and offers tips for levelling the playing field.
The number of companies on America’s Fortune 500 with more than 40% diversity in the boardroom has more than doubled since 2012.
That was one of the key findings in the Missing Pieces Report: The 2018 board diversity census of women and minorities on Fortune 500 boards, published earlier this year. This study is a collaboration by Deloitte and the Alliance for Board Diversity and highlights the progress made over the last few years.
It showed that there are now 145 companies in the Fortune 500 with diverse boards of 40%, compared with 69 in 2012 – a total of 76 more companies. With the larger Fortune 100 companies, 46 – almost half – have 40% diversity at board level.
“This is the most diversity we’ve seen in both the Fortune 100 and Fortune 500,” says Deb DeHaas.
“That is something to celebrate while still recognising that we still have more work to do. The 40 per cent benchmark by 2020 was originally set by the Alliance for Board Diversity, but that’s not going to appear unless something pretty dramatic happens.”
Going by the 2016 report, the target would be reached in 2026. In 2018, two years down the line, the pace has accelerated, bringing the date forward to 2024.
More seats at the table
Deb explains that, while this is a positive outcome, much of it was accomplished by boards to increase the number of board seats – up from 5,440 to 5,670 – in the Fortune 500. “This is a relatively significant increase and I do feel that a lot of the diversity gains in this most recent report, from 2016 to 2018, did come from adding some of those seats,” she adds. “That’s been an important way to enhance diversity and whether or not that trend will continue is unclear, but certainly that was impactful in some of the increases that were achieved in an enhanced pace of change.”
She believes that diversity improves the abilities of boards to solve the complicated problems that they face today and has an impact on the way that executive leadership teams handle strategy and talent, leading to better outcomes for the business.
One fact that stands out is that it’s the largest companies and those whose tenure has been in the Fortune 500 the longest, that are leading the way on diversity. Why?
“I think that these companies, because of their size and, in most cases, the global reach they have, they’ve tended to have a higher profile,” Deb offers. “They’ve had more visibility and I think they’ve recognised that having more diversity on their boards has been a competitive advantage; it’s helped to make them more successful.”
She points out that presence in the boardroom is just one element in measuring diversity and that traditional ways of tracking gender, race, and ethnicity in the workplace generally are equally important.
Look beyond traditional networks
The increasingly fast pace of change that companies are facing, including significant disruption from technology, and within and across industries, requires a diverse set of skills, experiences, and perspectives in order to address the issues effectively. So, companies need to take a step back and think more broadly to ensure they are bringing in diverse thinking and perspectives.
“Part of the reason for the increase and pace of change [in the US] over the last several years is the investor community has become much more outspoken on the importance of board diversity,” Deb reveals. “There’s certainly a number of investors that you could point to, whether it’s State Street, BlackRock, Vanguard, many of the state or city pensions-related funds, they’re very outspoken about the importance of diversity. And I think that’s having an impact, for sure.”
To improve the ratio of women and minorities at board level, companies need to look beyond their traditional networks – people they know – and be more proactive in seeking out diverse pools of candidates.
“All of the organisations within the Alliance for Board Diversity that we’ve partnered with in this survey have ways to connect potentially diverse candidates,” Deb explains. “And even at Deloitte, one of the things that we’ve been focused on for the last number of years has been to hold board-ready programming. This has allowed us to help develop a pool of candidates who are diverse in all respects.”
“It’s not uncommon that both boards and research firms will reach out to us to see if we might be aware of potential candidates. We’re not a search firm but we have a network of candidates that we think are well-qualified and may not be in a pool that they would be considered otherwise.”
When looking at traditional networks, it’s still often the case that the most sought-after experience is someone who is a current or former CEO – not necessarily a very diverse group. The solution is to look further afield at those with CIO, finance or technology experience.
Another recommendation is for companies to not only have diverse leadership but to build diverse pools of talent lower down who could eventually aspire to executive roles.
Five tips for diversity on boards
For those companies that still have some way to go in promoting diversity, Deb has five recommendations:
1. Refresh and evaluate board processes
This means having a rigorous and robust process for assessing current skill sets in the board room and aligning them with where the company strategy is headed in an increasingly complex environment.
2. Think about board succession
Implement a board succession process that is as equally robust as that for the CEO and other executive roles. Think about when people might be leaving the board due to reaching a term limit or mandatory retirement and make sure of having a broad range of candidates, including outside traditional networks, who can take those newly available board seats.
3. Identify opportunities for board leadership roles
Continue to look at the composition of the board and try and identify opportunities so that all members, including diverse members, have the chance of achieving board leadership.
4. Look at diversity and inclusion more broadly
Ensure that the board has a robust process for overseeing diversity and inclusion efforts throughout the company. Remember that diversity without inclusion doesn’t maximise the value of diversity.
5. Let voices be heard
In the boardroom have an inclusive environment where each board member’s voice is truly heard. When only one person on a board is from a diverse background, it’s much harder for them to be heard.
Summing up, Deb says: “One of the statements that I have said for many years, and I do strongly believe this, is that inclusion unleashes the power of diversity. So I think the boards have a huge opportunity and a responsibility to ensure their own board rooms are diverse and inclusive, but then that they’re also looking more broadly throughout the executive leadership team and throughout the companies, they serve as well.”