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Four Experts, Many Insights on Diversity and Corporate Governance

Board-Talk is a weekly online live broadcast where I am privileged to converse with expert guests about the topic of diversity and corporate governance. It was conceived because despite the fact that we have long known that diversity in the boardroom is good for business, the rate of change is glacial at best.

Our initial 10 week series which is hosted on MOSH.US (check it out!) consists of 10 guests that actually in some ways simulate what a diverse board could look like: seven women, and five individuals who are ethnically diverse. They also simulate the richness and wisdom that comes from a variety of experiences and perspectives. Our guests run the gamut from institutional investors, board directors to former CEO’s and others who offer insights and advice based on their own unique and heterogeneous backgrounds. Here are some of the highlights of the past 4 weeks:

Brenda Gaines, Board Director at Tenet Healthcare, Southern Company Gas and the Smithsonian Institute

Improving diversity in the boardroom will take a collective effort. It should begin with the “tone at the top.” This means that the Lead Director, Chair of the Nominating and Governance Committee as well as the CEO must believe in the value of diversity and be willing to take the steps necessary to improve this.

There are also two groups that can have a major impact. The first of these are member based organizations such as the National Association of Corporate Directors (NACD) and the Alliance for Board Diversity which is made up of Catalyst, The Executive Leadership Council and the Hispanic Association for Corporate Responsibility. These organizations are working to change the landscape through research, education and advocacy. The second group that can make a difference are institutional investors who are becoming increasingly vocal and progressive on the topic of diversity and corporate governance.

Rakhi Kumar, Managing Director and Head of ESG (environmental, social and governance) Investments and Asset Stewardship at State Street Global Advisors (SSGA).

Part of the trouble stems from how we go about identifying new board directors. No surprise to learn that many boards use their own networks when trying to find a new director. This may be easy and comfortable but the expected result is also predictable, homogeneity. Boards must look at their nomination process and find new ways to identify qualified candidates.

To even be able to look at the nomination process there must be a seat available or opening up soon. Which brings up another reason why boards are not more advanced in the diversity realm. There are simply not enough seats opening up to significantly change the composition of boards. Tenure and its close relative, board refreshment are important in any discussion of diversity in the boardroom.

Holly Gregory, Partner and Co-Head, Global Corporate Governance & Executive Compensation Group, Sidley Austin, LLP

Board composition is the foundation of an effective board. Achieving the right mix of directors is a difficult task. However, the pace of change in the business world is accelerating so boards need to continually assess themselves in terms of their composition. Boards need to look at whether their composition is appropriate vis-à-vis the needs of their business. The skill sets, experience, backgrounds and independence of their board directors must be aligned with the evolving requirements and strategy of the business.

There is also a need to change the culture of the board and the mindset of directors when they join. Each director needs to be George Washington, he or she needs to be someone who is willing to say, I value turnover and I know change is good and therefore if the change needs to be me then that is fine with me.

Michelle Edkins, Managing Director and Global Head of Investment Stewardship, BlackRock

Diversity in the boardroom is a matter of board quality and board effectiveness. One of the reasons it is taking so long to improve diversity in the boardroom is that, in the U.S. at least, for so long this was couched as a social justice or fairness issue. The companies that pushed back on diversity did so in large part because they felt that this was not what they were in business to achieve.

One of the ways that BlackRock is working to catalyze the necessary change is writing to companies that have zero or one women on their boards. They are requesting a deliberate plan for how these companies are going to remedy this situation. They are also letting these companies know that complacency can result in a vote against members of the nominating and governance committee. This is in line with the considerable research and anecdotal evidence that suggests that deliberate action is necessary to close the diversity gap.

The viewpoints overlap but each is nuanced and specific to the expert guest. Together they offer many options for improving diversity in the boardroom. It is incumbent on those in leadership and decision making positions to decide their own best path to change but doing nothing is not an option.