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Corporate Compliance Insights
Home Featured

When it Comes to Diversity in the Boardroom, Progress is Not Perfection

In Board Composition, There’s Room for Improvement

by Amy Rojik
September 12, 2019
in Featured, Governance
closeup of blue male and pink female icon buttons on keyboard

The boards of the companies in the S&P 500 now all have female representation, a significant step. BDO’s Amy Rojik discusses board diversity trends and the implications of this milestone.

The push toward gender parity in the boardroom reached a new milestone this summer.

In the final days of July, Copart, an online auction-house for automobiles, announced that it would be adding a female voice to its previously all-male board. The news might seem trivial amid a period in which many organizations are taking comparable steps toward balancing gender representation in their boardrooms, yet Copart’s move made headlines. Why? Because Copart’s addition signals the first time in history that all companies in the S&P 500 have appointed at least one female board member.

The news is a significant step forward in leadership diversity at the largest U.S. companies, but it also prompts us to look inward: Are we doing enough to champion meaningful change? After all, the S&P 500 represents just a small portion of U.S. public companies. Furthermore, according to the Equilar Gender Diversity Index, just one-fourth of board seats at S&P 500 companies are held by female members. Copart’s move represents a notable step in the right direction, but it’s important that corporate boards realize the mission is far from complete.

Enhancing the Boardroom and Changing the Mold

Organizations are employing several tactics to enhance and change the boardroom mold. In order to make room for fresh perspectives, some companies are expanding their boards. This strategy allows the board to bring on new talent without disrupting their current structure. This generally will occur when the existing board is highly functioning and may be hesitant to make changes as drastic as replacing a current, contributing member.

In instances where a board is not functioning to its best ability, however, organizations should consider the causal factors inhibiting performance. For example, some boards are keenly focused on whether over-boarding may be one of those root causes. Since many directors serve on several boards and/or hold full-time positions elsewhere, it is not uncommon for a lack of bandwidth to negatively impact an individual’s performance in the boardroom. While setting a limit on the number of boards a member can serve on may not be the most palatable solution, businesses are encouraged to take a close look at the scope of members’ responsibilities outside of their own board, on a case-by-case basis, to determine if action is needed.

Another increasingly common strategy boards are using involves conducting regular skill set reviews with the goal of ensuring that the board’s composition includes an array of relevant expertise and backgrounds relevant to the direction and strategy of the company. According to a recent board survey, 76 percent of respondents disclosed that their board is conducting skill set reviews. A complimentary next step is to incorporate diversity reviews, which are currently performed by just one-third of corporate boards, according to the survey. Fostering boardroom diversity in a broad sense — including consideration of not only attributes of gender, age and race, but also of skill and experience — is increasingly a focus of forward-thinking boards.

Perhaps the most important step corporate boards can take to advance diversity efforts is to reconsider their methods and mindset toward sourcing talent and grooming potential successors. This means looking beyond “traditional” candidates at the CEO, CFO and board level — title levels that have historically been dominated by white male executives. Too often, those charged with governance fall into unconscious forms of bias when looking at the next generation of talent, such as ”Mini-Me Syndrome,” which can occur when directors inadvertently write off candidates that don’t align with their age, industry experience, race and gender or even leadership or C-Suite experience.

Opening the door for more female executives in the boardroom means being deliberate about grooming promising candidates today. This may involve identifying talent from below the C-suite level and establishing mentorship and successor programs led by existing board members to elevate future leaders from within. The same is true for expanding external networks and seeking talent from beyond existing peer groups or reliance on search firms.

Are Quotas the Answer?

While there has been notable progress in the pursuit of increasing gender representation in the board room, some believe that installing quotas is the only way to ensure parity is reached. In the U.S., California was the first state to introduce such a measure, with former Governor Jerry Brown signing Senate Bill 826 into law in 2018. The controversial ruling holds that by the end of 2019, any publicly held corporation headquartered in California is required to have at least one female director on their board. By 2021, five-member boards will be required to have at least two female members and those with six or more directors will need to include three or more female directors.

But the implementation of mandates like Senate Bill 826 imply that organizations need to be coerced into diversifying their leadership team. Such incentives are proving less necessary as more and more corporate boards are understanding that diversity in the boardroom isn’t just about checking off a box. Maintaining a balance of differing viewpoints, backgrounds and experience is widely proven to lead to heightened performance. Simply agreeing with or making “token” appointments demonstrating support of the benefits of gender parity on corporate boards, however, isn’t enough. If organizations don’t continue working diligently to alter preconceived notions about recruiting boardroom talent, mandates may become the only choice.

The fact that 500 of the United States’ largest public companies all have female representation on their boards is certainly reason to celebrate. The progress made on this initiative in the past five years alone gives us reason to uphold a positive outlook toward the future of board diversity. But there is still much to be done. While concrete steps like diversity reviews may help push the needle in the right direction, true gender parity in the boardroom will never be possible without challenging traditional thinking and breaking down the barriers that limit boardroom opportunities for the troves of capable female executives in the workforce.


Tags: board compositionboard of directorsdiversity
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Amy Rojik

Amy Rojik is a National Assurance Partner and Director of BDO’s Center for Corporate Governance and Financial Reporting, where she oversees the firm’s communications and governance efforts. Amy has more than 25 years of experience in the auditing profession, engaging with financial reporting executives, audit committees and board members. Amy leads a collaborative effort in providing continual thought leadership and educational opportunities for clients and contacts of the firm across a broad variety of corporate governance and financial accounting and reporting topics of interest. This includes webinar programming, in-person board of director forums and presentations, and the development of practice aids, surveys, publications and alerts.

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