Corporate Board Diversity
Numerous studies have shown that boards with diverse members have a better financial performance. This has led to a convergence of forces which are pushing companies to adopt more diverse boards. These include protests and activism by people of color and women and pressure from investors as well as shareholders, and the perception of companies with diverse boards as “good” for society.
Despite all this momentum it is true that many companies don’t have boards that are very diverse. Nasdaq stated that last year 75 percent of the companies listed on their exchange could not have met the markets’ seemingly basic diversity requirements. Black, Latinx, Asian, and other minorities are largely unrepresented despite their substantial proportions in the US population.
Quotas are a possible solution. They will oblige companies to publish the diversity of their boards based on an approved template, and to have at least 2 directors who self-identify as female or from minority groups that are not represented, or justify why they aren’t. The use of quotas to promote diversity is not the best solution. It can raise legal issues and reduce the benefits of having more voices at the table.
Instead, it’s time to move past box-checking and quotas in favor of a more deliberate, focused approach to governance. It means focusing less on how many women and minorities are seated at the table and more on how those voices can be used to boost the company’s performance. This requires a cultural shift that creates an atmosphere where it is safe to think differently and engage in challenging discussions.