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Diversity is important for board effectiveness

Article originally published by the American City Business Journal on October 4, 2021.

Conversations about board diversity usually focus on gender and racial diversity. However, there is also diversity of functional expertise, of experience in other industries and diversity of political views. All are important to make the best governance decisions for an organization. 

Directors on governmental authority boards may be selected based on political or patronage considerations. The previous boards of the Philadelphia Housing Authority and the Philadelphia Parking Authority did not have the experience to deal with sexual harassment accusations against their CEOs. The board members’ personal reputations and those of their organizations were damaged. 

A board diverse in political views is more apt to identify and address issues than a board of uniform thinkers. This is especially important today given the political polarization of our nation. This was apparent when a board on which I serve faced a decision with political ramifications.

Companies serve customers and clients as well as work with stakeholders with a broad spectrum of political beliefs. Board discussions need to be respectful and treat similar situations in a consistent manner. Decisions may not satisfy all board members, but everyone should feel that all positions were aired and all factors were considered.

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Too often, boards fill director positions based on referrals by the CEO and other board members because it is comfortable for them to do so. Recruiting from their own professional and social networks perpetuates a lack of diversity. This process will rarely result in a diverse board that will help make better decisions. Many boards hire search firms to fill director positions to avoid this issue by identifying candidates not previously known to the CEO or incumbent board members. 

Quoting a Jan. 2018 McKinsey report, “Using 2014 diversity data, we found that companies in the top quartile for gender diversity on their executive teams were 15 percent more likely to experience above-average profitability than companies in the fourth quartile. In our expanded 2017 data set, this number rose to 21 percent and continued to be statistically significant.”

A March 2019 Harvard Business Review article points out the downside of “tokenism.” The article tells of a woman who turned down a board position because during the interview process, she felt that she was not being considered for the position based on her skills and experience, but due to the desire to increase board diversity by adding a woman. As when hiring employees, the goal is to create a diverse pool of candidates. From that pool, the best person should be selected for the job and that person should not feel they were a token hire.

I have served on public, private, private equity, trade association and nonprofit boards, and I have seen the benefits of board diversity. When joining a board, I often wondered why the incumbent directors had exercised tunnel vision and ignored an issue. I use these experiences to assess my own performance as a director. I don’t want a new director joining our board to ask that same question of the incumbents. A diverse board will lessen the likelihood of this occurring.

 

Stan Silverman is founder and CEO of Silverman Leadership and author of “Be Different! The Key to Business and Career Success.” He is also a speaker, advisor and widely read nationally syndicated columnist on leadership, entrepreneurship and corporate governance. He can be reached at Stan@SilvermanLeadership.com.

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