Talent On Board: To Increase Board Diversity Requires a Shift in Recruitment Attitudes and Practices

Evidence shareholders are being short-changed by traditional board composition is mounting with every research report linking the participation of women in senior management and on boards to positive business outcomes.  In Canada, diversity is being given an extra push by the Ontario Securities Commission’s ‘comply or explain’ policy.  Companies will need to publicly release information about how they are promoting and actively managing gender diversity.  Board diversity is more than just about rectifying bad optics.  It is about getting the best talent around the table.  To do that will require more than good, heartfelt intent, which I believe we have a lot of in corporate Canada.  Underlying the existing board composition patterns are a set of beliefs and attitudes that drive board recruitment and selection decisions.  To change the outcome requires some fundamental shifts in how we think about and recruit board members. 

Board Recruitment Attitudes and Practices Help Maintain the Status Quo

Historically, board members have been drawn from the pool of retired CEOs, COOs and CFOs with experience in a similar or related industry and often with a connection to one or more influential members of the board.  Board recruitment was, and in many cases still is, informal and personal.  The introduction of recruiters to the process has broadened the search, but the ideal candidate profile has remained relatively consistent.  The traditional recruitment model poses a number of challenges when the goal is to diversify.

1. To identify diverse candidates, boards will need to reach beyond their existing networks.  Last month my not-for-profit board launched our 2015 recruitment strategy.  We asked current board members to identify potential candidates from amongst our networks.  This is a strategy most organizations employ.  When existing directors don’t have a strong network of diverse candidates, the recruitment process stalls.  The ‘lack of awareness of potential diverse candidates’ and ‘belief there are not enough diverse candidates’ have been identified as two of the top 3 obstacles to increasing board diversity (Spencer Stuart, 2013).  It turns out directors know potential candidates just like them, but not so many who are not like them.  To be successful in achieving diversity, boards will need to re-think their recruitment strategy.
2. Expanding and diversifying board candidate criteria would significantly increase the pool of director candidates.  As long as director talent pools are defined in a way that excludes a majority of women and minorities, diversity goals will be difficult to achieve. The number of women and other under-represented groups who have been CEOs or COOs in any industry is minuscule.  A recent study of 3000 global companies found a mere 3.9% of current CEOs and 8.5% of business unit heads are women (Credit Suisse, 2014).  As long as CEO or operating experience remains a key criterion for board selection, the pool of potential female candidates will be breathtakingly small and continue to reinforce the belief there are no qualified women.   
3. Board directors need to value broader, more diverse expertise.  One solution to the board diversity dilemma is to broaden the kind of background and expertise boards typically seek.  For example, expanding the candidate talent pool to include those who have served in any senior executive role would increase the number of female candidates by 400%.  The global Credit Suisse study reports 17.5% of top finance and strategy roles and 19% of top legal/HR/marketing/administrative jobs are held by women.  But to make this recruitment strategy work will require a fundamental shift in attitudes at the board table around the value of different kinds of expertise.  While 93% of board members rate financial expertise and 68% rate operational experience as ‘very important’ only 22% rate HR or legal expertise in the same way (PwC, 2014).  For diversity initiatives to take hold, sitting directors will need to re-think the value they place on the types of background and expertise they need around the board table.  

 
Diversity as a Strategy to Build Talent on the Board

Increasing diversity is more than just good PR.  It helps boards and organizations better address key business and governance issues.  There is tremendous breadth and increasing complexity in the issues facing organizations today.  For example, according to Deloitte, the top board concerns for 2014 included: enterprise risk management, executive compensation, corporate strategy, shareholder activism and sustainability.  The Conference Board (2014) identified the top five challenges for CEOs as: human capital, customer relationships, innovation, operational excellence and corporate brand and reputation.  While former CEOs will continue to form the nucleus of corporate governance, boards made up of members who bring deep and diverse expertise are probably better equipped to help organizations anticipate, tackle and solve their most pressing problems.  Diverse boards bring a more comprehensive collective view, are more attuned to risks and opportunities, and are in a better position to provide guidance and oversight to the organization.  When talented people across multiple domains with diverse experience and perspective come together in the pursuit a common objective, good things can happen. 

Sources
Spencer Stuart Board Index.  Spencer Stuart, 2013.
Governance Trends Shaping the Board of the Future: Board Performance and Diversity.  Annual Corporate Directors Survey, PwC, 2014.
The CS Gender 3000: Women in Senior Management.  Credit Suisse, 2014.
Deloitte Center for Corporate Governance, 2014.  www.corpgov.deloitte.com/site/us/board-governance/.
The Conference Board CEO Challenge® 2014: People and Performance.  Conference Board of Canada, 2014.