Boardroom diversity is far from just a hot-button buzzword, and today, it’s well understood that diversity is never recommended simply for the sake of “checking a box.” The truth is that boardroom diversity brings immense benefits to the CEO, the entire organization, shareholders, and the board itself. For organizations that want to outperform their competitors and have a board operating at its maximum effectiveness, diversity is key.
But how can boards know if they’re truly excelling at boardroom diversity and acting on their commitments to be more diverse, equitable, and inclusive? How can they improve upon them?
Through annual evaluations where boardroom diversity can be assessed, organizations can take in-depth looks at their board and use these insights to understand how diversity in the boardroom can drive business results.
We’ll go over what to consider and other tips for success.
Let’s start at the beginning: what exactly is boardroom diversity, and how is it different from the “checkbox” diversity of years past? Boardroom diversity refers to boards that are diverse in their thinking and representation. More specifically, this includes having diverse board directors in gender, race, and ethnicity.
When we look at the evolution of executive bodies (including boardrooms), it’s clear that there have been many big changes in what board composition looks like.
For example, typically in the past, board members would recommend personal connections for director positions (leading to an “old boy network” mentality), and boards lacked diversity.
Data tells us that board compositions are still rapidly changing. One study found a four-fold increase in the number of companies with greater than 40% boardroom diversity compared to a decade ago, for example. But there were a few other stark findings from this study, including the fact that 36% of diverse board seats are occupied by persons on multiple Fortune 500 boards, indicating that opportunities are concentrated and that they “need to be spread more widely among eligible women and minority board candidates.”
The truth is that there are many benefits to boardroom diversity.
Firstly, board diversity reflects on the real world (including diverse clients and customers), which every company should be sensitive to. Board diversity can also create healthy debates, which lead to better decisions.
Plenty of data supports the fact that boardroom diversity is an excellent decision. For example, studies have found that diverse teams outperform their competitors and that the more diversity is present, the more they outperform.
Board diversity also maximizes board effectiveness. Great ideas come from disrupting the status quo, and different backgrounds mean that the same idea will be approached differently. Also, it’s critical to note that diversity will not only make your company knowledgeable and sensitive to a wider variety of groups, but it’ll also set an example at the top that will hopefully have a trickle-down effect within the organization.
In order to understand the board’s effectiveness, improve upon it, and identify how diversity can improve the board, you need to understand how to measure its performance. Here’s how it works.
A board evaluation is a process of conducting an in-depth analysis of the performance and effectiveness of a board. This includes assessing the individual performance of board members, how effective the board is as a whole, and how well it can keep up its fiduciary duty to shareholders. The board itself can conduct an evaluation, the organization as a whole, or by an outside partner (here at N2Growth, we offer board/director assessment and evaluation services).
Board evaluation processes can differ depending on who is conducting them. It might involve in-depth discovery, where the body conducting the evaluation works vigorously to understand the current board’s composition and identify each member’s experience.
Board evaluations might dive into the directors’ responsibilities and assess their effectiveness. This process can also involve presenting and discussing the results, identifying areas for success, and concluding on areas for improvement.
Board evaluations can include assessing the board composition today, how future-proof the board is, and how prepared it is to take on unknown challenges. These evaluations also include taking stock of boardroom diversity and understanding how improving board diversity and composition might lead to a more effective environment.
When it comes to how often you should evaluate a board, there are varying answers to this question. While every two to three years is appropriate, it is also ideal to evaluate your board often in order to track efforts, effectiveness, and composition closely.
To evaluate your board in a way that illuminates exactly how effective it is and how the board could be improved (particularly when it comes to diversity), keep these best practices in mind.
As we discussed earlier, board evaluations might look different depending on who is conducting them. Planning and designing an effective and unbiased process is critical when running your board evaluation. This can include precise evaluation steps to take, methods for evaluation, and criteria.
Next, you should identify which topics you want your evaluation to cover and determine how they will be measured. Success may look different across assessment criteria and even from board director to board director.
After determining your evaluation topics, it’s time to lead the evaluation process. This can include assessments, studies, debriefs, and other types of analysis.
What are your boardroom evaluation results, and what do they really mean? It’s important to look at the results for what they are and understand how they connect to the board’s larger goals, particularly for the future.
Your boardroom evaluation results should provide clear answers to how effective your board is today and how well it is prepared for the future. After you determine the results of your board evaluation, you can use these results to determine the next steps to take.
For example, suppose your board is severely lacking in boardroom diversity representative of your organization. In that case, you can conduct a board director search to find candidates who best support your board’s mission and goals.
How exactly do you increase boardroom diversity? Of course, boardroom diversity can be achieved by finding top-tier board directors from various backgrounds, including those diverse in thinking and gender, race, and ethnicity. And as we discussed earlier, increasing boardroom diversity should never be about checking a diversity “box” and shouldn’t simply be performative.
Here’s how you can increase diversity in the boardroom in an authentic way.
Improving boardroom diversity goes hand in hand with bringing on board directors who best fit the current composition and talents of the board. By using evaluations to understand how a board is performing and where its current skill gaps are, organizations can seek board directors from diverse backgrounds who fit the board’s needs and bring vital skills, experience, and knowledge to the table.
Organizations don’t only need board members who are technically and educationally qualified for the role: they need members who represent the organization and clients as a whole. This representation brings diverse thoughts, ideas, and experiences to the boardroom, ensuring that the board is performing at its maximum effectiveness.
Finding excellent new board members can be challenging because often, the best candidates aren’t already sitting on boards, and in general, there is a growing global talent shortage rocking the workforce. When boardroom diversity is a priority, you don’t have to navigate finding candidates on your own: world-class executive search firms can find your perfect match.
The leading executive search firms use data-driven methodologies to conduct a robust search process suitable for filling confidential and complex executive positions. They also deeply understand how boardroom diversity amplifies boards and are skillful at building inclusive teams.
Boardroom diversity is critical to board effectiveness. The best way to master boardroom diversity is by holding a mirror to your board composition and performance. Board evaluations are an excellent place to start, and after that, boards need to take steps to bring on more diverse directors.
Don’t worry: you don’t have to do this alone. Here at N2Growth, we’re not only an elite retained executive search firm; we also know boards inside and out and understand how crucial boardroom diversity is to success.
Interested in taking your board to the next level? Discover how partnering with N2Growth can help provide a more in-depth look into your board composition.
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