Boards Need to Become More Diverse. Here’s How to Do It

Maria Castañón Moats is Leader at the Governance Insights Center, PricewaterhouseCoopers LLP. This post is based on her PwC memorandum. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite by Alma Cohen, Moshe Hazan, and David Weiss (discussed on the Forum here).

When the SEC approved Nasdaq’s new board diversity rules earlier this month, it was yet another sign that the time has come to open public company boardrooms to directors with a broader set of backgrounds, experiences, and identities. Now more than ever, diversity on corporate boards is a business imperative.

Even when change is necessary, it often isn’t easy. Many boards are likely asking themselves where to begin. At PwC, we’ve been talking about the need for increased boardroom diversity for years, why it’s important, and how to get there. Our own board is more diverse than ever. And from our perspective, the time for all businesses to act is now.

One important reason for taking action is that the pressure on companies that lag behind on board diversity will likely only rise from here. Nasdaq’s rule will require companies listed on its exchange to add diverse directors or explain why they haven’t. Other stakeholders’ expectations are rising as well.

Several states have passed legislation mandating that businesses headquartered within them disclose board diversity data. California has gone further, enacting laws that require public companies based there to have a certain number of directors who are women or identify as Black, Latinx, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or as lesbian, gay, bisexual, or transgender.

Shareholder expectations are changing as well. State Street Global Advisors, one of the largest institutional asset managers, announced that it will begin voting against nominating/governance committee chairs at companies that lack board diversity next year. BlackRock said it voted against more directors this proxy season than it did last year, and diversity concerns were the biggest driver. Proxy advisory firms are also closely monitoring board diversity.

There’s clearly a growing urgency to bring fresh voices from diverse backgrounds into the boardroom. As I outlined in a recent article for Corporate Board Member, there are several steps boards can begin to take right now.

Take stock of where you are (and where you want to be)

Start by setting clear goals for your board diversity. Leverage robust individual director assessments and succession planning so you can evaluate whether or not each sitting director’s skills and attributes still align with company strategy and build a board for the future that has the right skills and diverse perspectives.

Develop a diverse pipeline of board candidates

A commitment to increasing diversity requires looking beyond the walls of your own boardroom. One of the biggest perceived hurdles to making boards diverse is the supposed lack of qualified candidates from underrepresented backgrounds. Directors can help challenge this narrative by sponsoring diverse talent within their professional networks for board opportunities. They can also push executives to give their company’s rising stars the time and opportunity to develop and demonstrate their skills as a director.

Embrace inclusivity as well as diversity

Simply adding new directors from diverse backgrounds to the board isn’t enough. In order to benefit from their perspectives and experiences, boards must make an investment in inclusion as well. That means opening the conversation up and changing the tone in boardrooms. Invest in board education to raise awareness of unconscious bias and other boardroom dynamics that can have a long-term negative impact on the board’s diversity and inclusion investment and overall performance.

At PwC, we aren’t just talking about board diversity, we’re embracing it. As of July 1, 2021, more than 63% of our new board of partners and principals are women and/or ethnically or racially diverse. We’re still not where we want to be, but we’re taking the necessary steps to get there. And as our partnership and workforce become more diverse, we expect that to be reflected in our board.

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