Not too long ago, John blogged about how companies may focus on overboarding as one way to move forward with increasing board diversity. A recent report from The Conference Board, ESGAUGE and others that analyzes Russell 3000 and S&P 500 board composition trends provides several suggestions to help companies move beyond simply setting numerical board diversity targets. Lending credibility to the need to go beyond setting numerical targets, the report cites various stats showing the lack of progress toward greater board diversity.
With investors (and now insurers!) increasingly looking for action and progress on diversity initiatives, companies might want to start thinking about steps they can take to show progress in working toward improved board diversity. Diversity, of course, goes beyond gender and race/ethnicity. The report discusses the importance of diverse skill sets and age diversity, and suggests boards make diversity part of the ongoing board succession planning process. The report offers one take on what boards can do to help improve diversity. At minimum, some of these ideas may help get a dialogue started. The report mentions requiring a diverse slate of director candidates. Beyond that, here are more of the report’s suggestions:
– Endorse a model where every other board seat vacated by a retiring board member is filled by a woman or the model described in the recent California law requiring directors from underrepresented communities
– Ensure nominating committees are diverse
– Consider diversity when making board and committee leadership appointments
– Get ahead of investor demands for information about board diversity and include more narrative information about the racial and ethnic background of directors as part of a broader explanation of the multiple dimensions of diversity on company websites.
– When it comes to director tenure, the report says boards should consider how best to achieve a mixture that includes long-serving directors, along with those in the middle and new directors. For disclosure, companies should consider disclosing the range of tenures to investors and consider adopting an average tenure and similar policies that encourage a healthy level of turnover but avoid the shortfalls of rigid term limits.
– Strengthen the director evaluation process to ensure that specific cases of long tenure are examined holistically and in light of other assessment factors such as the board’s overall gender, age, racial and ethnic diversity, skill sets, and rate of board refreshment.
– Look outside the C-Suite for potential director candidates. To help ensure newly minted directors have the requisite experience and abilities, put robust processes in place for identifying, recruiting, onboarding and engaging directors to help them succeed. As companies increasingly seek individuals with specific skill sets, such as cybersecurity and human capital management, looking outside the C-suite can bring different perspectives and problem-solving approaches. Boards should examine their own culture to ensure that they and management are providing a genuinely inclusive environment.
-Lynn Jokela, TheCorporateCounsel.net December 11, 2020
