What board diversity means for modern governance & why it’s important

Diversity and inclusion are becoming increasingly expected for boards. In addition to reflecting shared social values, diverse board composition is a significant and measurable contributor to board effectiveness across all sectors.

Diverse boards tend to perform better because they bring together different skills, viewpoints, and backgrounds, which inform higher-quality decisions. This translates into more strategic guidance and risk management.

Publicly traded companies are under greater pressure to demonstrate board diversity. Nasdaq’s Board Diversity Rule now requires companies publicly listed on Nasdaq’s US exchange to disclose board-level diversity statistics annually as well as explain why they do not have diverse directors. Other regulators and investors are developing their own reporting standards.

Still, some boards have questioned whether creating a policy for board diversity is necessary when it can divert their efforts from planning and oversight, or if diversity of membership is something they already do well.

Each board must make their own decision (unless regulations or investors require you to take action), but like many board policies, having guidelines in place is about reducing risk – avoiding potential issues if board leadership changes and issues arise. With board diversity policies having become common, it’s become easy to consider available templates, discuss the relevant needs of your board and decide whether to put something in place.

With a stronger push to share how you’re working and progressing towards board diversity, read on to see some of the latest guidelines and best practices for boardroom diversity.

Or skip ahead to these sections:

• What is board diversity in corporate governance?
• Why is board diversity important?
• How is board diversity measured?
• What is a board diversity policy?
• Examples of board diversity
• Board diversity, equity, and inclusion
• How does a board portal help with board diversity?

What is board diversity in corporate governance?

In its simplest sense, board diversity means having many board members that are different from one another.

The goal of board diversity is to make the board less homogenous so that people can evaluate information, decisions and future needs of the organization they serve from diverse perspectives. Diversity can be considered in many different ways, such as age, ethnicity, gender, skills, experience, competencies, philosophies, education, race, sexual orientation and religion, to name a few.

The path to board diversity is to cultivate a useful diversity of members in the boardroom. For global companies, for example, diversity could include representing the cultures and ethnicities of the diverse regions they serve. For a financial institution, in a lower-income community, diversity could include presenting different socio-economic backgrounds, levels of education and representative ethnicity.

Why is board diversity important?

Choosing who will serve on a board of directors is extremely important to board performance. You might be tempted to build a board with well-known and prestigious members to present a good image. Boards that are compliant and easy to manage are also popular. These are the types of boards that often only do enough to survive rather than serve the organization’s best interests.

Having a diverse board is in the interests of all company stakeholders. Good corporate boards depend on diverse perspectives and skills. Businesses and organizations face many challenges and complexities, so having a broad set of board perspectives and competencies is a primary asset to problem-solving and realizing the company vision. For this reason, diverse boards have been shown to outperform non-diverse membership.

Countless reports show that diverse boards create more value. In one recent study, companies with a greater diversity of women (at least three) on their boards are more likely to prioritize innovation.

Investors are eager for any performance advantage and are putting increasing pressure on boards to include more women and minorities in recent years. In some states, board diversity is even required by law. Be sure to research and follow the mandates for your company or organization.

See related: How is diversity important in the boardroom? 3 benefits you might not know

How is board diversity measured?

How diversity needs to be measured or reported can vary. Typically age, gender and ethnicity of the board members are most commonly reported when disclosing the demographic diversity of the board. Some boards are also self-reporting LGBTQ+ board members as part of their board diversity report.

However, there can be reluctance for some directors’ reluctance to self-identify their ethnicity or sexual orientation. Not all directors are willing to disclose their sexual orientation or ethnicity for the purpose of corporate public disclosure documents.

Like business operations strategies, boards must create goals, processes, and metrics to measure and improve their diversity consistently. Consider using Nasdaq’s Board Diversity Matrix examples to help guide your reporting.

What is a board diversity policy?

Simply put, an organization’s board diversity policy sets out its aims for diversity and how it will achieve diversity on its board. It’s often a formal statement or set of guidelines to ensure a deliberate mix of board members.

By implementing a board diversity policy, organizations seek to proactively build a board that can better understand and serve the needs of the communities they serve.

Creating board diversity policies has often resulted from pressure from investors, regulators and other stakeholders to best protect and foster organization performance.

What is a board diversity statement?

Along with a board diversity policy, boards may also include a board diversity statement. The diversity statement should showcase the many ways its experience and values contribute to diversity, equity, and inclusion. Why the board of directors values diversity and how they plan on improving it or ensuring the board achieves its diversity goals.

See related: 5 practical steps to improve board diversity

What is a diversity report? 

Diversity reports serve to provide a brief overview of the diversity efforts of the overall organization and the board of directors. The reports may include statistics on the composition of its senior management team and workforce such as on gender, race, ethnicity, age, sexual orientation and disability status.

The purpose of a diversity report is to offer transparency regarding the organization’s efforts toward achieving a diverse and inclusive environment. Examples of these reports can easily be found online, with a typical report consisting of 24 to 36 pages.

Diversity reports often include the following observations and measurements:

• An updated board diversity statement
• The diversity and inclusion policy of the organization 
• A history of the business’s journey towards diversity 
• Goals and progress towards achieving those goals 
• A list of employee resources for diversity and inclusion
• Programs, events, conferences, and other resources held that year
• If applicable, diversity council members or external diversity advisors 
• Partner organizations to continue fostering diversity and brand reputation outside the board 
• If relevant, diversity awards and honors 

Examples of board diversity

Building a diverse board of directors can also be accomplished outside traditional networks. Directors are typically chosen from particular groups. However, the Black Young Professional (BYP) Network aims to provide more opportunities for people of color. BYP’s founder, Kike Oniwinde, partners with companies like Google, Facebook, Adobe, and Airbnb to increase diversity.

The following professional networks also have board members with diverse backgrounds: American Indian Science & Engineering Society, Black and Brown Founders, Hispanic Women in Leadership, LGBT Meeting Professionals Association, and Ellevate Network. 

The list above is not exhaustive; there are numerous other professional networks for underrepresented groups. Most of them work with companies seeking diversity in employees or board seats. 

A diverse board of directors should include underrepresented community members. For example, as of April 2024:

• Facebook’s board of directors is 36% women; two of which are Black women.
• Target’s board of directors is 36% women with 36% of the board identifying as Hispanic/Latino or Black/African American.
• Accenture’s board of directors is 50% women and 50% from ethnic minorities.

Board diversity, equity, and inclusion

As organizations across North America strive to improve how we inclusively engage the stakeholders and communities we serve, the term Diversity, Equity, and Inclusion (DEI) has become increasingly popular. It includes those who have been overlooked, under-resourced, and marginalized throughout history. In promoting DEI, we can provide these individuals with the tools they need to thrive and improve their lives. 

​​These trends are evident, especially among young generations who will influence the future. To improve the lives of the millions of people who have been overlooked, we must celebrate diversity, promote equity, and create an inclusive society. Everyone benefits when people live fulfilling, enjoyable, and meaningful lives.

How does a board portal help with board diversity?

While boards are continuing to progress in advancing board diversity and inclusiveness, there’s still room for improvement and board technology can help.

Aprio’s board management software plays an important role in keeping directors involved and ensuring that diverse perspectives are considered by:

• Facilitating equal communication and making sure every voice is accounted for with features like real-time updates, survey tools, and unified access to board materials at any time.
• Enhancing the onboarding process for new directors with immediate autonomous access to board details, including board meeting schedules, contacts, bylaws, role outlines, meeting records, and historical archives. With Aprio, directors receive tailored training and round-the-clock support.
• Attracting younger directors who are at ease with technology and expect easy access to information and tools necessary for their roles, including on mobile devices.
• Easy, continuous access to policies like board diversity to guide strong performance for board recruitment and reporting.

If you’re curious about how board technology can support board diversity, get in touch with our team. We’d love to learn more about your needs.