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Why Companies Need To Build More Diverse Boards

August 12, 2015
Diversity & Inclusion
A great company usually has a great board behind it, both supporting the CEO and helping move the company forward. Well-functioning boards set strategy, monitor risks, deal with succession planning and provide guidance when it comes to recruiting talent.
 
So what makes a board highly effective? The answer to that question has changed dramatically in the last decade–in response to the global financial crisis and myriad corporate sandals. Generally, boards are comprised of high-profile former executives and corporate leaders with extensive experience in general management and risk. These are people who were or are at the top of the game professionally and have a successful track record in the industry. Yet regardless of how accomplished a board is, to be effective it also has to be diverse.
 
The best corporate boards have a wide variety of skills and experience among directors in order to move a company toward its long-term goals. At my company, IvyExec.com, we help recruit and build diverse boards for our clients. It’s like putting together pieces of a puzzle; they are all different, but in the end, fit together perfectly.
 
Building a diverse board, isn’t easy but it’s vitally important. Diversity brings in new thinking, insights and perspective about consumers, markets and business practices. A lack of diversity represents a missed opportunity. Boards that are too culturally homogenous can wind up with blind spots and miss important cues about market trends or internal problems. That’s why a highly accomplished and diverse board—and that means more women, more people of color and a wide variety of ethnic backgrounds–is so critical, particularly today, when businesses compete on a global scale.
 
In fact research from Ya-Wen Yang at Wake Forest University School of Business and two colleagues recently found that corporations with more diverse boards of directors were less prone to take risks and more likely to pay dividends to stockholders than firms with largely homogenous boards.
 
Yang and her colleagues looked at more than 2,000 publicly traded companies over a 13-year period. She says they found “clear and convincing evidence that board diversity significantly curbs excessive risk taking.”  And although much of the discussion today about board diversity is focused on gender, Yang’s research used a broader definition, one that included gender, race, age, experience, tenure and expertise. Firms with diverse boards were more likely to pay dividends–and to pay higher dividends per share–than corporations with less diverse boards.
 
A diverse board enables a company to have multiple views on the outcome of any action, which also means the board is more likely to take into account a variety of risks. Women are especially underrepresented on corporate boards. To change that, at Ivy Exec we are helping companies identify top female leaders. And as women increasingly move into top leadership positions, the pool of eligible female candidates for board director spots is growing.
 
When recruiting for a board of directors, every company’s nominating committee should:
 
  • Make diversity a requirement.
  • Establish a set of competencies and insights the board seeks.
  • Analyze the current board to ensure a broad range of perspectives is represented and, if not, identify the gaps.
  • Cast a wider net. Look a little below the C-suite for women and minority groups that have valuable expertise, skills and perspectives to add to the board.
 
Above all, foster a board culture that invites and encourages open, honest feedback and independent opinions. As Juliet de Baubigny, a senior partner at venture capital firm Kleiner Perkins in Silicon Valley said, it’s important that boards—which tend to reach for what’s familiar and comfortable—strive for diversity of opinion and push a company’s leadership by challenging conventional wisdom.
 
By Elena Bajic
 
Source: Forbes

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