Importance of board diversity in modern governance | Aprio
November 25, 2021
Florian Mukuta

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

The importance of diversity and inclusion for boards is well-founded. In addition to reflecting shared social values, diverse board composition is a significant and measurable contributor to board effectiveness across all sectors.

Diversifying a board’s composition has unique advantages, but few guidelines or best practices are available for organizational leaders seeking to address this issue.

To achieve success, a diverse board of directors must include a variety of perspectives, skills, ages, genders, cultures, and ethnicities. This parlays into effective decision-making, guidance, and risk management; having a diverse board of directors is essential. 

What is board diversity in corporate governance?

Regulatory agencies have focused their attention on different board of directors matters over the years. Diversity on boards has long been promoted as one of these matters. In its simplest sense, diversity means having many individuals that are different from one another.

However, board diversity does not have a clear-cut definition. In general, its goal is to make the board less homogenous by considering ethnic diversity and racial diversity, among other factors.

The goal of board diversity is to cultivate a wide range of demographic factors in the boardroom. For example, it is common to include female representation on the board of directors to promote heterogeneity (commonly referred to as gender diversity).

In addition to ethnicity, diversity also refers to the community and society the organization serves. For global companies to succeed, they should represent the cultures and ethnicities of their diverse stakeholders. Additionally, organizations must reflect the diversity of the society where they operate. As a result, organizations can mitigate risk and build solid brand reputations. Diverse boards of directors can help companies enhance their reputations as responsible and aware corporations that understand their communities and deserve consumers’ trust.

Diversity can be described and defined in many different ways, such as age, ethnicity, gender, skills, experience, competencies, philosophies, education, race, and religion, to name a few.

Why is board diversity important?

Choosing who will serve on a board of directors is vital for directors. It is not always what it seems. You might be tempted to build a board with power and prestige to present a good image. Boards that are compliant and easy to manage are popular among CEOs. These are the types of boards that only do enough to survive rather than serve the organization’s best interests.

Rather than just ensuring compliance, having a purpose in governance is the best practice. Even a diverse board can have amicable discussions if they listen actively, consider multiple viewpoints, challenge ideas, and ask hard questions.

Deep insight, multiple perspectives, and a wealth of experience are necessary for robust discussions of challenging issues. For this reason, the diverse boards are the best boards.

Good corporate boards depend on diversity and a plethora of perspectives. Businesses and organizations face many challenges and complexities, so having a broad set of competencies as a primary asset is crucial to overcoming them. 

In some states, board diversity is even required by law. Be sure to research, know, and follow the mandates for your company. 

A board will be more comfortable with diversity if it has more experience. Of course, there is still room for improvement regarding strategies for influencing diversity.

How is board diversity measured?

As mentioned, as there is no clear-cut definition of board diversity, its measurement is also largely subjective. For example, the age, gender, and nationality of the board members are considered when measuring the demographic diversity of the board. 

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

Like business operations strategies, boards must create goals, processes, and metrics to measure and improve their diversity consistently.

What is a board diversity policy?

Simply put, an organization’s board diversity policy sets out how it will achieve diversity on its board. 

Investors have been increasing pressure on boards to include more women and minorities in recent years as they believe this will result in better representation. Creating board diversity policies has often resulted from pressure from investors and other stakeholders. The culture of some companies has already been adjusted to be more inclusive, including their hiring policies.

Many companies have felt that they have done enough to convince shareholders that their current policies extend to their recruitment efforts for board directors. The issue of board diversity is seldom deemed to be a problem by some boards, so some have questioned whether creating a policy for board diversity is the best way to divert their efforts from planning and oversight. Companies may adopt these diversity policies to assure shareholders they listen to their concerns and respond to them.

What is a board diversity report? 

Diversity reports serve to provide a brief overview of the diversity efforts of a board of directors. 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 

Board diversity statement

The task of creating a board diversity statement is an important one for your board, and you want to do it right. 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.

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, Facebook’s board of directors is 40% women; two are Black women, Target’s board of directors is a third female with almost half identifying as Latinx or Black. Starbucks’ board of directors has 46% of People of Color, with 39% identifying as female. 

Board diversity, equity, and inclusion

As our country strives to improve its standing for all its citizens, the phrase 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 country’s 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 nonprofit board diversity come into play?

Having a nonprofit organization board that reflects the community’s diversity makes it easier for the organization to access resources in the community by establishing relationships with potential donors, collaborative partners, and policymakers.

There is already an understanding among many board members that a homogeneous board may lead to nearsightedness and groupthink. The opposite is true in the case of a diverse board, which can produce creativity and innovation, which can contribute to achieving the organization’s mission and helping constituents understand what they need. The diversity of boards also attracts more funding, and institutional investors are becoming more focused on diversity. Many nonprofit boards, if not most, aren’t moving forward with diversity.

Nonprofit boards must make a concerted effort to accommodate the increasing diversity of our communities to remain relevant, effective, and grounded in the community they serve.

Diversity on boards is supported by modern governance

For boards to be diverse, they must adopt a modern governance model. The board management software by Aprio is the program of choice for today’s boards. Aprio provides innovative solutions to the needs of boards of diverse organizations with different structures, missions, and goals. Through Aprio, organizations can communicate more securely and successfully. 

Informed directors make better decisions. Learn how Aprio can help your diverse organization today by scheduling a custom demo

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