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How to Diversify Corporate Boards

May 4, 2022

Many sources say the key components of effective corporate boards include passion, service, and authority. What’s missing from that list is diversity. Most organizations understand the benefits of diversifying corporate boards. They know truly influential boards include individuals from different social and ethnic backgrounds, as well as people of different genders, races, sexual orientations, and more. Yet corporate boardrooms are a realm of the business world in which diverse voices continue to be underrepresented.

A Spencer Stuart study found that 75 percent of corporate board members are white and 70 percent are men. Diversity on corporate boards has increased over time, but, unfortunately, not by much. Research conducted by the Institutional Shareholder Service’s ESG division found that underrepresented ethnic and racial groups make up only 12.5 percent of corporate boards—an underwhelming 2.5 percent jump since 2015.

But with movements like Black Lives Matter and #MeToo shining the spotlight on everyday social injustice, efforts promoting corporate equity, gender diversity, and inclusion are increasingly taking center stage. It’s surprising that the push didn’t happen sooner. Diversity is, after all, a key driver of innovation and a critical component of success on a global scale. Unfortunately, although diverse business professionals want to be “in the room where it happens,” the reality is that roadblocks abound when it comes to diversifying corporate boards.

One solution is policy change. Some organizations are stepping up to push for more diverse corporate boards. For example, all Nasdaq-listed companies must disclose board-level diversity as of August 2021 and have at least two directors from underrepresented groups.

Another solution is individual action. While the responsibility of diversifying boards belongs with corporations and the organizations that regulate them, ambitious business professionals from underrepresented groups can move the process along by taking steps to understand the factors behind the continuing lack of diversity on corporate boards and by readying themselves to serve on those boards. That’s where Howard University’s part-time online Master of Business Administration program can help. The 48-credit hour MBA curriculum emphasizes the leadership principles purpose-driven boards look for in members.

Seven benefits of board diversity

Academic and industry research strongly support a business case for diversifying corporate boards.

  • Board diversity drives shareholder value. There is a strong correlation between board diversity and shareholder value, supporting a compelling economic case for board diversity.
  • Diverse boards enhance financial performance. While there was no relationship between board age diversity or board independence and financial performance, a report from McKinsey found that “diverse companies are 33 percent more likely to have greater financial returns than their less-diverse industry peers.”
  • Companies with diverse boards do better. A white paper from the Illinois State Treasurer Michael W. Frerichs that examined the investment case for board diversity in 2020 found that companies with diverse boards, “inclusive of gender and race/ethnicity, are better positioned to execute good corporate governance, effective risk management, and optimal decision-making, as well as enhanced customer alignment, employee engagement, and transparency, as compared to those with laggard board diversity.”
  • Board diversity promotes creativity and innovation. “Diverse boards also appear to deter ‘groupthink’ and help reduce instances of fraud, forms of corruption, and shareholder contests,” SEC Commissioner Kara Stein said in a 2018 speech. Groupthink is a psychological phenomenon in which a group thinks or makes decisions in a way that minimizes creativity and responsibility. It can be extremely damaging, especially when layered with a lack of organization-wide diversity.
  • Adding diverse board members to an underperforming corporate board can improve board performance. According to Jared L. Landaw, COO of Barington Capital Group, diversifying corporate boards serves as a “catalyst for positive change, such as the implementation of measures to redress company challenges.”
  • Companies with diverse boards are more likely to embrace a corporate culture of diversity, equity, and inclusion. They are also more likely to achieve diversity goals at all levels. McKinsey states that ensuring representation of diverse talent at all levels—executive, management, technical, and board roles—is a best practice of more diverse companies.

Why diversifying corporate boards is so challenging

While biases and systemic issues have kept diverse voices off corporate boards, there are at least three additional issues and misconceptions that make diversifying boards in corporate America complex.

1. Apathy on the part of organizations

Often, stakeholders do not prioritize board diversity. It’s common for organizations to talk about their celebration of diversity in the workplace, but fail to take action when it comes to establishing a diverse board of directors. While structural roadblocks may exist that hinder public companies from having diverse boards, it’s notable that prominent Fortune 500 companies are paving the way and setting an example of what board diversity could and should look like. As of 2019, these firms have 22.5 percent women and 34 percent women and minorities on their corporate boards, according to Deloitte.

2. Low or slow board turnover

BoardSource recommends two consecutive three-year terms for nonprofit organizations, while the National Association of Corporate Directors suggests board term limits of 10 to 15 years. Many organizations do not meet these benchmarks. A Conference Board report found that close to half of the largest companies in the U.S. made no changes to their boards in 2020. Other research shows that board turnover tends to be modest year over year. The 2018 Spencer Stuart Board Index report found that “ongoing low turnover in U.S. boardrooms continues to slow down the advancement of women and minorities on boards.”

Because it is so common for board members to stay on for six years or more, term limits can make it easier to bring new directors onboard—ideally, diversifying the board in the process. Another straightforward solution would be to add a temporary or permanent board seat.

3. Companies see candidate pools as limited.

Organizations can encounter real challenges when looking for diverse board members, but the bigger issue may be rooted in perspective. One workaround is for boards to widen their search pools to include active executives and candidates below the C-suite. This isn’t as unusual as some believe. The 2018 Spencer Stuart Board Index report found that “first-time directors are younger than their experienced peers and more likely to be actively employed” and “nearly two-thirds of the incoming class come from outside the most senior board and company leadership roles.”

For many companies, developing a diverse board is easier when they bring in outside help. The Black Boardroom Initiative, for example, which is backed by Amazon, Deloitte, Microsoft, and Zillow, is working to increase the number of Black men and women serving on S&P 500 boards to one in eight by 2028. Individuals can support these organizations’ efforts by readying themselves to serve in the boardroom.

How HBCUs are diversifying corporate boards

Companies recruit students from Historically Black Colleges and Universities like Howard for several reasons. One is that HBCUs are committed to developing a more diverse pipeline of talent at all levels. According to Ronald A. Johnson of the Atlanta University Center Consortium, “to meet the demand for well-educated, well-qualified, and diverse talent, inroads must be made to broaden and improve educational attainment among African Americans and Hispanics… One effective and expedient means of addressing this pipeline for well-qualified talent, creativity, and innovation is to identify and support relevant programming among the nation’s Historically Black Colleges and Universities.”

If you’re a business professional with years of work experience who aspires to advance into a board position someday, HBCUs offer a proven track record of job placement, an affordable academic experience, an accessible option for low-income and first-generation students, and an environment that nurtures student success. Most HBCUs also offer generous financial aid through grants and low-cost loans. Black students at HBCUs are twice as likely to describe their college experience as ‘supportive’ than those at non-HBCU institutions, according to one Gallup poll.

Howard University’s role in diversifying the corporate world

Howard University is “very good at creating opportunities for students in the corporate world,” according to School of Business Dean, Anthony Wilbon, Ph.D. “We’ve been doing it well for years. We have an alumni base who are in almost every sector of the business world and in the highest leadership positions.”

With a long reputation of cultivating top managers and executives in business, government, and nonprofit organizations, Howard University School of Business sets students up for success. Its alumni hold leadership positions across the United States and around the world. It is the only HBCU ranked by Bloomberg Businessweek and is ranked 41st by U.S. News & World Report.

The dynamic coursework in the University’s 100 percent online MBA degree program teaches international and U.S-based students with core management competencies and offers students from diverse backgrounds opportunities to become culturally aware leaders who think critically and confidently make decisions—in executive positions and in board seats.

Howard students who pursue their MBAs at their own pace via the online learning platform receive a high-touch experience akin to that of full-time students. They can take advantage of scholarship opportunities and the University’s Career Center, which maintains partnerships with leading corporations, startups, and nonprofit organizations. They benefit from healthy classroom diversity. MBA graduates also join the Howard University Alumni network, which opens doors and offers rich networking opportunities. In 2019, Howard University’s MBA Program was ranked #1 among the Greatest Resources for Minority Students by The Princeton Review for the 16th year in a row. Additionally, Howard MBA students are sought after by recruiters from around the Washington, D.C. area and across the United States.

If you have a bachelor’s degree and you’re considering applying to Howard’s School of Business, you may be looking for better job opportunities, a higher salary, new management skills, entrepreneurship training, or advanced business knowledge. What you may not have considered in your search for the best online MBA programs is the more significant impact that you can make with a Master of Business Administration. Becoming an international business leader or entrepreneur in fields such as healthcare, supply chain management, business analytics, or human resources can bring you immense personal satisfaction. Doing your part to diversify corporate boards will do that, too, and provide you with opportunities to drive real-world change.

Interested in finding out more about getting your master’s degree as a Howard Online MBA student? Now is the time to learn more. Explore the Howard student experience and the admissions process or connect with an enrollment advisor today to make your enrollment at Howard a reality and get you one step closer to securing your seat on a diverse board.

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