The events of the past two years have served as a reckoning on societal and racial issues in corporate America. As stakeholders continue to demand change, businesses are increasingly expected to serve their workforce, the communities they operate in and their bottom line. These forces have further underscored the business case and benefits of boardroom diversity — of background, experience and thought — and resulted in a heightened call to action to accelerate progress.
Fortunately, many companies have made promising steps toward increasing board representation. According to the sixth edition of the “Missing Pieces” report, organized by the Alliance for Board Diversity (ABD) in collaboration with Deloitte, Fortune 500 board representation for women and minorities continues to climb, up from 34% (1,929 board seats) in 2018 to 38% (2,253 board seats) in 2020. Since 2010, the number of companies with greater than 40% diversity on their boards has nearly quadrupled.
However, there is still a long way to go. Based on research on the rate of change in board census data from 2010 through 2020, it will take until 2074 before the number of Fortune 500 board seats held by minorities reaches the ABD's aspirational 40% board representation rate. And while women and minorities have made more progress in board representation for the Fortune 500 between 2016 and 2020 than between 2010 and 2016, the average growth for minority representation on boards since 2004 (the first year this data was collected) is less than half a percent per year. While the marketplace has been focused on diversity in the boardroom at a seemingly accelerated rate this past year, we are still far from where we need to be.
This lack of progress could hinder efforts to drive diversity, equity and inclusion (DEI) outcomes and advance broader societal goals, given the essential role the board plays. Our recent research, “The Equity Imperative,” outlines the critical role of the board in driving equitable results within the workforce, marketplace and society more broadly. Teams that are both diverse and inclusive can reduce groupthink and spark innovation.
The Deloitte Governance Framework, as published in our report with National Association of Corporate Directors NXT, “Board Inclusion Framework: Enabling boards to govern inclusively,” outlines key areas for board responsibility and oversight: strategy, governance, talent, integrity, performance, culture and risk. Each area has a unique impact on driving DEI outcomes. While boards should consider their role in governing DEI, the tone is set from the top and influences how the board itself operates as a diverse and inclusive body.
Diverse board members are necessary to effectively meet these obligations and responsibilities. In a comparison of low- and high-performing boards, high-performing boards were more likely to exhibit gender balance and inclusive behaviors. In fact, as the “Missing Pieces” report observes, woman and minority corporate directors are more likely to bring experience with corporate sustainability, government, sales and marketing, and technology skills. These are skills needed in the boardroom as we move toward a post-pandemic world, tackle climate change and grapple with increased competition, regulation and disruptive technology. Currently, fewer than 55% of board members on Fortune 500 boards have those skills.
In today's environment, not taking steps to introduce diversity in the boardroom is an intentional decision that purpose-driven organizations cannot afford to make. Now is the time for boards to review and update their board composition, recruiting and succession practices. Boards should try to reach outside their traditional networks and recruit members whose experiences differ from the majority. Put simply, a diverse board helps to ensure that organizational efforts are focused on achieving outcomes over activity and results over good intentions. In this era of heightened expectations regarding equity, we all should be striving for outcomes and results, and a diverse board is a crucial success factor.