CLS Blue Sky Blog

Diversity’s Role in Boardroom Leadership

What does boardroom culture yield when a board commits to a broad embrace of diversity—including diversity of gender, ideas, ethnicity, race, education, age, and skills?  Do chances improve for decisions that help lead the company to maximize its potential and meet its leadership responsibilities?  And if so, how?

Given all the research data about boardroom diversity, it’s tempting to turn to data for answers.  Yet data are limited in what they can tell us about how diversity affects boardroom culture and leadership.  By contrast, examining the experiences of directors who have served on a board that embraced—or didn’t embrace—diversity as an element of its culture can uncover key mechanics of how diversity improves a board’s ability to lead.

Diversity Data Limitations

Research data have no problem tracking certain specific issues related to boardroom diversity.  For example, research data can tell us that gender diversity is growing, albeit slowly, on the boards of the 3,000 largest publicly held companies incorporated in America.[1]  Female representation on these boards reached 18 percent at the end of 2018, up from 16.5 percent at the end of 2017, and up from 15.1 percent at the end of 2016.

By contrast, research data have difficulty shedding light on other issues related to boardroom diversity.  For example, does this uptick in gender diversity correlate with an improvement in corporate performance?  Post and Byron (2015) analyzed the findings of 140 peer-reviewed studies of board gender diversity.  Pletzer, Nikolova, Kedzior and Voelpel (2015) analyzed another 20 such peer-reviewed studies.  These two analyses suggest that the relationship between board gender diversity and corporate performance is either zero or weakly positive.  Yet in fact this conclusion can be given little weight for a number of reasons, including these:

Attempts to measure how other aspects of diversity—e.g., racial, ethnic, educational, or skills—affect boardroom culture and performance would seem likely to end up being inconclusive for similar reasons.

So at least for now, in looking to assess the impact of diversity on boardroom culture, the question to ask might be, “What happens when board members embrace diversity as part of the bedrock on which their boardroom culture[2] is built?”

Diversity as a Boardroom Upgrade

We recently conducted a series of interviews on boardroom culture, featuring conversations with accomplished tech industry directors, CEOs, investors, and founders.

The interviewees said a lot about diversity’s role in boardroom culture, sometimes in response to a direct question about diversity or board composition, and sometimes in response to a question that, at first glance, appeared to be about an entirely different topic.

So what happens when board members commit to a broad embrace of diversity—including diversity of gender, ideas, ethnicity, race, education, age, and skills—as a main element of their boardroom culture?  The interviews indicate that diversity gives the board opportunities to upgrade its ability to lead.

A Question of Leadership

On one level, then, based on the experiences of the interviewees, a broad embrace of diversity can act for a board as a sort of gateway decision to upgrades in talent, skill, customer connection, operational knowledge, advisory capacity, insight, societal leadership, and organizational growth.

On a more fundamental level, a broad embrace of diversity means that the board’s work can be the byproduct of people who are different, and their ideas, which are likely to be different and likely to lead to questions.

Why do questions matter?  As Founder/CEO 3 observed, “[O]rganizations move in the direction of the questions that they ask.”  Organizations don’t move, and probably don’t grow or even survive or exist, without asking questions.  Questions might be the lifeblood of every organization.  Every business plan is, in some sense, an answer to a question.  The more insightful the questions, the more likely the answers to them will be insightful, and the more likely the organization built on them can thrive.

So openness to questions, the ideas behind them, and the people who ask them, even when those ideas and people seem unfamiliar, would seem to be not a proposed policy to put into committee for consideration over the coming quarters—i.e., not a big disruption—but rather to be an indispensable element of any board that wants the organization to make payroll this month.  Openness to different people and their different ideas and their questions would seem to be why diversity is an element of boardroom culture that improves chances that the culture will yield decisions that lead the company to maximize potential and meet leadership responsibilities.

Will this full commitment to diversity guarantee better decisions and leadership from the boardroom, and thus better company performance?  Guarantee is too absolute a link to claim between diversity and performance because, as noted in the Acme anecdote above, diversity is never the only variable that affects performance.

But in an economy where investor, regulatory, and societal demands are creating a marketplace whose complexity is shifting and increasing, and where global economic stability is far from guaranteed, who seems more likely to lead a company to maximize potential and meet leadership responsibilities:  a diverse group of open, inquiring minds with an upgrade in talent, skill, customer connection, operational knowledge, advisory capacity, insight, societal leadership, and organizational growth, or a closed group whose crush on their preconceptions forces them into betting that, tucked up in their tree house, they already have all the answers?

ENDNOTES

[1]  The Equilar survey cited is based on board composition on the Russell 3000, which Investopedia defines as the companies with the 3,000 largest U.S.-traded stocks.  https://www.investopedia.com/terms/r/russell_3000.asp

[2] The Merriam-Webster Dictionary defines culture as “the set of shared attitudes, values, goals, and practices that characterizes an institution or organization.”  https://www.merriam-webster.com/dictionary/culture

[3]  Founder/CEO 1 is an innovator, entrepreneur and seasoned board member.  He has has founded six companies, three of which went public.

[4]  CEO 2 is chairperson, CEO and president of a public company.  She also serves on the boards of several public and private companies.

[5]  Venture Investor 1 has served on many venture-capital-backed boards.  At the time of the interview, she was senior managing director at a large corporate venture fund.

[6]  Venture Investor 2 is a partner emeritus at a prominent Silicon Valley venture fund.  He is a veteran member of many boards across a breadth of technologies.

[7] CEO 3 is a five-time founding CEO of successful tech companies.  He has served on the board of several public companies.

This post comes to us from Joseph Mandato, a managing director at DeNovo Ventures, senior advisor at Mainsail Partners, lecturer at Stanford University, and co-chair of Harvard University’s Advanced Leadership Coalition. William Devine leads the Corporation in Society practice at William Devine Esquire, a Silicon Valley compliance and governance law firm, and is an adjunct professor of law at Menlo College.

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