New Perspectives on Diversity in the Boardroom: To Curate, Obligate or Legislate?
By Sharon Egilinsky

Diversity in the boardroom and the C-suite remains a top priority, but we must take the dialogue deeper and become more creative in our approach. While giving current efforts a chance to yield significant results, it is time to apply less prescriptive approaches to achieve remarkable diversity in our boardrooms.

Let me define diversity in the board context. It is a wide-ranging set of skills, age, experience, culture, education and mindset — not just the overtly familiar characteristics of race and gender. I submit that a combination of quantitative and qualitative data will also drive greater results and more productively refocus the narrative.

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DIRECTORS TO WATCH: New Guidance Invites Investor Action on Diversity and Inclusion

Actions and Initiatives to Increase Board Diversity

Driven by global exchanges, activists and other stakeholders, the impetus to change board composition has been long underway. Despite hotly debated conversations and efforts, the results are lackluster. Not surprising. Why? To date, our methods are primarily driven to achieve “top-line outcomes.” One-step-forward, one-step-back results are what we can reasonably expect from such a linear approach. An update is needed to create the cadence and the change that are intended and sustainable.

By prescribing an increase in numbers alone, are we looking at the issue only from the top down and too linearly?

The short answer is yes. To be more representative of our shareholders and customers, we need to “curate” diverse talent as much as legislate and obligate. Diversity is not simply motivated by what is politically correct or ethically warranted. There is also a clear business priority to ensure that boardrooms are fully equipped to best represent the clients and markets their companies serve.

In many ways, when employed exclusively, a top-down, quota-like approach disproportionately results in chilling existing directors while at the same time asking them to take action because it is generally good for business. We encourage incumbent directors to commit to a diversified board composition, but base it on top-line numbers, messaging that top-down percentages are most important, as they are arguably most easily measured. Effectively, what we are saying to those charged with the responsibility is that these same directors themselves will be phased out because they do not fit the top-down form. Other examples include using age or skin color versus gender as screens. Are we swapping one set of overly discriminatory criteria for another that might be acceptable if the reward yielded better trends in the right direction? These current screens create an inherent personal and targeted disincentive for sitting decision makers to carry out change, and for that reason, they are weak. After all, directors are human.

Patently absent from the top-down, diversity-driven initiatives are three questions: What is the modern strategy behind how/where we search for diverse candidates? Are the same subject-matter experts and C-level roles in comparable companies all-encompassing enough to keep up with the DNA needed to support management in a constantly evolving regulatory and economic environment? Finally, perhaps most critical: How do we meaningfully and realistically evaluate individual and overall board member performance?

Rather than obligatory measures, the most impactful approach is board-driven willingness to recast leadership criteria for the future, modernizing the application of fiduciary obligations.

What is the strategy behind where we search for candidates?

Where I believe the great disconnect exists is in the frequent rationalization that “there is not a deep enough bench of diverse candidates” to either fill board openings or avoid directors who hold upwards of three board seats. Sure, this might be true when we continue to search the same database that has not been considerably overhauled for decades.

How can the bench expand until we modernize our criteria? Let’s widen the scope and include executives who are outstanding leaders across other industries but may not have had board service as a priority and are flying under the traditional potential director radar. We must commit to searching outside the old box and reinvent ways to identify and track talent with metrics updated to represent growth of our businesses. This will require making investments in new ways to engage executives and to identify and keep an eye on emerging talent capable of becoming outstanding directors.

Is the historic board candidate skillset enough to govern effectively and support a management team in fast-moving technology, regulatory and economic environments?

It’s still important to consider those individuals who understand the business personally, given their same industry backgrounds, and who currently hold or have held a board seat. However, board searches continue to emphasize these more obviously measurable qualifications. This needs to change. If we contrast the board’s evolving role with management’s responsibilities, a director does not need same-industry expertise or a concurrent director role to support the management team or best serve shareholders. Having distinctly different industry expertise is additive in supporting the management team’s endeavors and offering diverse and wider peripheral vision on risk, market opportunities, benchmarking, infrastructure, competitive landscape and crisis management.

The future board skillset requires professionals who are expert at cross-application of experience; are willing to recognize the intersection of industry, technology and socialized messaging; and add a more inclusive vantage point. These diverse talents will empower management, most remarkably for innovation, and offer additional confidence to regulators and shareholders that the company is more broadly supported for extraordinary scenarios like a global pandemic. This is what I term curating candidates with “diversity of mindset,” producing candidates who are diverse and who also fill the top-down directives through means other than quotas.

How do we reasonably evaluate board member performance for any board?

The evaluation of board performance is the most content-rich, albeit challenging, area that we need to evolve. How can we effectually measure a company’s performance if we remain challenged in measuring the performance contribution of the board? It is near impossible to either determine boardroom effectiveness or connect board member contribution without metrics that are creatively crafted and endorsed by the directors yet do not inhibit the board’s view of exposure and risk.

An evolved board evaluation will become increasingly more important in management/board dynamics, regulatory oversight and shareholder disclosure as well as in litigation and will be useful in diversity initiatives. Board responsibilities and timeframes for staying current on governance-critical company information will increase exponentially as data and technology advance, forcing communication and methods that assume knowledge at a pace no less than fast and furious. Imagine the future board meeting, including teleported people and information, holographic board decks and the ability to ask secure responses to data-driven questions in a matter of minutes rather than days. This practice is not as far away as some think. I believe it is the exciting sweet spot where all board qualities intersect in the ability to be adaptive, unafraid of continuing to learn new technologies, open to new ways to socialize/communication and an advocate of customer evolution. It is also critical in sustaining the argument that all types of diversity are good for business.

The metrics around board performance tie directly into my suggestion of the curation of diverse board talent, more organically leading to the evolving set of experiences and skills that grow with the customer, business and economy. Use of data and analytics is a huge opportunity in the performance measurement and governance space. This business judgment/data analytics power combination can serve as the foundation for an evolved performance framework that is competitively in line with emerging performance attribution methods from other arenas. As a result, we can more equitably create attrition for those whose interests, knowledge, and skills no longer align with the advancing application of board fiduciary duties.

I believe amid change there will be tremendous opportunity to access a wider range of board candidates and support a modernized method of attrition. As I have discovered over the last year, the chance to work with companies in architecting new metrics for the governance body of the future is exciting and arguably more productive and workable than current call-out tactics alone. Those organizations that are open to do the work, to curate and to adopt the not-so-obvious, less politically driven metrics will be able to leverage this opportunity and create sustainable change for the better in board composition.

Sharon Egilinsky is the founder of SREVOLVE, advising management and boards on strategy and business modernization. She held numerous leadership positions in her Wall Street career at Citigroup, Credit Suisse and Deutsche Bank, and has served on and advised boards throughout her career. She was a 2014 Directors & Boards Director to Watch.


Issue: 
2020 Fourth Quarter

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