Promoting Diversity and Inclusion Through Corporate Governance

In today’s corporate world, there’s an increased need to observe diversity and inclusion in boardrooms, just like in other places. From gender, ethnic, and socio-economic diversity to cultural, racial, and geographical inclusion, everyone wants to be counted and feel valued, safer, and comfortable around the boardroom table. 

Interestingly, studies show behavioral changes are apparent in the boardroom when the board is more diverse, and there’s an unprecedented positive impact. Boardrooms that observe diversity and inclusion (D&I) are more collaborative in decision-making. The fact that they enjoy diverse perspectives means there’s room for innovation and creativity, bias mitigation, and better governance, among many other benefits. 

Note, nonetheless, that despite the advantages that diversity and inclusion enjoy at the boardroom level, it’s not always a smooth sail. There are bound to be bumps along the way, which include a restricted talent pool, unconscious bias, tokenism, and internal resistance, to name a few. The good news, however, is that these hurdles can be overcome, as we shall see later. 

This guide will help you understand what diversity and inclusion mean at the board level, modern-day examples, their principles, importance, and implementation steps. Furthermore, we’ll explore the challenges you will likely encounter when promoting D&I and how to overcome them. So, let’s dive in!

diversity and inclusion in boardrooms

Key Takeaway

  • Board diversity means having members of diverse backgrounds, demographics, and attributes on the board of directors.
  • Board inclusion means allowing a diverse group of qualified individuals to work together as part of the board where they can feel valued, safe, and confident about making contributions. 
  • Essential board diversity and inclusion principles include balanced representation, inclusivity, equal opportunity, accountability, and continuous improvement. 
  • Board diversity and inclusion help with diverse perspectives, decision-making, innovation and creativity, bias mitigation, brand reputation, market understanding, psychological security, better corporate governance, and revenue boost. 
  • Promoting diversity and inclusion at the board level involves situation assessment, talent pool expansion, inclusion fostering, stakeholders’ engagement, D&I measurement, and continual training, mentorship, and adaptation. 
  • Notable challenges of promoting D&I in boardrooms include a restricted talent pool, internal resistance, unconscious bias, cultural differences, talent retention, tokenism, and wage discrepancies. 
  • D&I challenges can be overcome through talent exposure and diversification, an inclusive environment, board education, gap analysis, talent support, skill-based frameworks, and competent wage structures.

What Do We Mean by Diversity in Boardrooms?

The term ‘diversity’ is often used in the boardroom to refer to the board constituting members of different backgrounds and demographics and those with diverse life experiences, expertise, and personal attributes.

Essentially, board diversity focuses on the following:

  • Socio-demographic representations such as race, gender, ethnicity, religion, socio-economic conditions, and disability status
  • Personal qualities like values, interests, personality, and personal goals, among others
  • Experiential attributes like industry experience, education qualification, practical experience, and academic knowledge 

What Do We Mean by Inclusion in Boardrooms?

The term ‘inclusion,’ which points to ‘belonging somewhere’ or ‘being part of something,’ is often used in boardrooms to provide a mix of individuals the opportunity to work together and feel needed, valued, confident, and safe. Inclusion embraces diversity, equity, and equality in the boardroom and encourages a more positive work culture, leading to better governance. 

Key Principles Board Diversity and Inclusion 

Successful board diversity and inclusion campaigns are driven by five essential principles, which are as follows: 

  1. Balanced representation: Companies need board members who represent their interests and protect their image irrespective of where they come from or how they look. The members should come from different backgrounds and should represent diverse demographics. 
  2. Inclusivity: Companies should work towards eliminating barriers that could lock out potential board candidates or prevent their full and free participation in boardroom affairs. 
  3. Equal opportunity: D&I dictates that a company offer equal opportunity to candidates for board positions regardless of race, ethnicity, gender, age, or cultural background. 
  4. Accountability: D&I is not just a statement of a company’s intent to embrace differences among its board members but also a commitment to accountability. The board should implement the policy and share its progress with stakeholders. 
  5. Continuous improvement: D&I is an ongoing process. Companies must set measurable goals and track their progress. They also must assess the board composition and make necessary adjustments periodically. 

Modern Examples of Diversity and Inclusion in Action in Boardrooms

Did you know that 40% of the Bank of Cyprus board members are women? Well, the bank is a modern-day example of what gender diversity means and has been lauded for its excellent corporate governance structure. 

However, the Bank of Cyprus is not the only established organization showing balanced participation at the boardroom table. There are others. Women, for example, comprise 36% of Facebook’s board, and more impressively, two are African American.  

Target also has women occupying 36% of its board of directors, and 36% of the board is represented by Hispanics (or Latinos) and blacks. Meanwhile, a company like Accenture has 50% of its board of directors come from ethnic minority groups; gender-wise, 50% of the board is made up of women. 

Other notable organizations that fully embrace diversity and inclusion include Black Young Professional (BYP), Elevate Network, and Black and Brown Founders, to name a few. 

Diversity in Boardrooms

Importance of Board Diversity and Inclusion

Companies, especially boards of directors, stand to benefit immensely from diversity and inclusion. Here are some of the benefits that stand out: 

1. Diverse perspectives

Board diversity brings about diverse viewpoints on different issues that a company could be combating. With every board member having their outlook, life experience, and background knowledge, they can brainstorm and contribute positively to the company’s existing problems. 

2. Improved decision-making

Diverse perspectives bring different suggestions that could help a company unravel its most complex issues by examining them from a multidimensional angle. D&I makes it easy for the board to make a more favorable decision. 

3. Innovation and creativity

Since board members come from different backgrounds and enjoy varying life and work experiences, they can devise more innovative and creative solutions that benefit the company. 

4. Bias mitigation

We are all victims of unconscious bias (where we favor certain people based on particular preferences) at some point. The danger is that it can lead to some members feeling undervalued and underrepresented. D&I, however, helps to mitigate such bias by bringing everyone on board and making their presence and contribution count. 

5. Brand reputation

D&I’s commitment demonstrates a board of directors’ social responsibility, appreciation for diversity, and acceptance, which improves the company’s image in the long run. Such a company can successfully challenge the status quo, and that builds its reputation.

6. Market understanding

The fact that board members come from different backgrounds and possess different competencies and life experiences allows them to assess the market better. 

7. Psychological security

Diversity alone isn’t enough. Board members need to feel free and safe to work, and that’s where inclusion comes in. Inclusion promotes psychological safety in the boardroom, as all board members can speak their minds. 

8. Better corporate governance

Diversity and inclusion at the board level challenge the governance status quo, forcing the board to be more accountable and responsible for its decisions and actions. There’s more transparency and ethical compliance from the board. 

9. Revenue boost

Research indicates that diverse companies are at least 33% more likely to enjoy better financial returns than less diverse companies. Companies with diverse board members and top executives are likely to capture the attention of newer markets, significantly boosting their ability to generate more revenue. 

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Critical Steps to Promoting Diversity and Inclusion in Boardrooms 

Embracing diversity and inclusion at the corporate level is a process that takes several steps and efforts. Let’s explore them below:

Step 1 – Situation Assessment

Assessing your company’s current situation is essential before anything to identify D&I gaps that you should fill. It also means identifying opportunities that need leveraging. This is possible through carrying out a diverse audit or benchmarking exercise. 

Note also that you can use an assessment tool to collect demographics on board composition and use the information to set measurable priorities and goals. In addition, you can conduct surveys to understand the board members’ experiences and pinpoint existing barriers that need immediate address. 

Step 2 – Talent Pool Expansion

Upon assessing the board’s current D&I situation, the next step is to widen its talent pool through an open and transparent selection process. This means broadening the selection process beyond traditional professional networks and prioritizing skills, competencies, and diverse backgrounds. 

Talent pool expansion means establishing meaningful partnerships and tapping their wealth of talent. Since partners are expected to contribute equally to the company’s betterment, they’ll considerably help by bringing their diverse expertise and life experiences, which can help promote D&I. 

Step 3 – Inclusion Fostering

With the talent pool expanding, it’s time to promote an inclusive culture within the company and around the boardroom. This can be achieved through a shared vision, training, and establishing norms for inclusion.

Furthermore, companies should promote a collaborative culture by encouraging dialogue, feedback recognition, and constructive conflict of interest resolution. 

Step 4 – Stakeholders’ Engagement

Stakeholders are vital players in a company’s corporate governance and, thus, should be involved in its D&I campaign. The board can engage them by communicating the company’s vision and goals and soliciting feedback on various matters affecting the company. 

Stakeholders include employees, investors, customers, communities, and regulatory authorities. They all have a role, and their contributions are essential in embracing diversity and inclusion at the board level. 

Step 5 – D&I Measuring

Using different metrics, weigh your D&I efforts to establish where you are and where you should improve. One effective metric is member representation, where you should check for underrepresentation and address the issue. 

Another D&I metric is conducting surveys on workers’ engagement. That allows you to get feedback from workers about how they feel about the company’s and the board’s pursuit of diversity and inclusion. The feedback will help you identify the specific areas that need addressing.

Step 6 – Continual Training, Mentorship, and Adaptation

Lastly, it’s crucial for the board of directors to continually learn about the best D&I practices and maintain the status quo. Overall, training offers opportunities for discussions and dialogues among board members and those leading the training. This helps them open up and identify areas they should immediately address. 

At times, the board may need to invest in mentorship programs to understand better how to tackle emerging challenges. The mentorship can help them address existing biases and challenges, and it’s also an opportunity to receive the best guidance for overcoming cultural barriers. 

More importantly, the board members should be willing to adapt to changes and fine-tune their strategies accordingly. They should be willing to accept new members on the board and offer them ample time to settle and feel comfortable before they can judge them. 

Examples of Diversity and Inclusion in Action in Boardrooms

Challenges of Promoting Diversity and Inclusion in Boardrooms 

Most boards of directors are unsuccessful at embracing diversity and inclusion because of the challenges they face. These challenges include: 

  1. Restricted talent pool: While D&I offers diverse perspectives on different issues a company faces, it’s never easy to identify fitting candidates when you get them from various backgrounds. You’ll need a broader talent search network to do it. 
  2. Internal resistance: Not everyone is ready for a change, especially when the change means accepting people who look, talk, and behave differently. Such internal resistance makes it harder for the board to fully embrace diversity and inclusion. 
  3. Unconscious bias: Sometimes, the recruiting team may favor some candidates based on their preferred backgrounds and demographics during board nominations. This makes it hard to observe proper inclusion and diversity. 
  4. Cultural differences: Cultural barriers, including communication hindrances, may make it difficult for boards to absorb members from diverse backgrounds and collaborate with them. 
  5. Talent retention: D&I sometimes forces the board to keep members beyond their best years and non-performing to maintain the status quo. The danger is that such board members have little to no contribution to the board. 
  6. Tokenism: It’s tempting to include individuals from underrepresented and minority groups on the board primarily to meet the D&I requirements without focusing on competence and qualifications. That’s what tokenism is about, and it could lock out more competent individuals. 
  7. Wage discrepancies: Wage equity is essential when accepting new board members, especially external directors. However, if there are discrepancies in the compensation structure, it could deter the board’s effectiveness. 

How to Overcome D&I Implementation Challenges in Boardrooms 

Although challenges are likely to pop up in pursuing diversity and inclusion, they can be overcome. Here’s how to go about it: 

  1. Talent exposure and diversification: Companies must go beyond their boundaries when recruiting new board members. They also need to diversify their talent search. That may mean leveraging industry events and conferences to find outside directors with an unbiased lens who can fill the diversity and inclusion gaps. 
  2. Inclusive environment: Ensuring the boardroom is more inclusive is crucial, meaning everyone should feel safe and comfortable contributing. More importantly, the members should be internally willing to accept changes in the board, and one way to facilitate that is by instituting policies that enforce such a culture. 
  3. Board education: Board training is critical to mitigating unconscious bias. In order to avoid bias, existing board members should be trained on what’s expected of them when running a D&I campaign. Training generally strengthens their commitment to a diverse and inclusive board. 
  4. Gap analysis: Gap analysis helps to identify underrepresented skills, competencies, and attributes within the boardroom. It’s critical to assess the board’s internal culture to enable it to take better D&I initiatives as it becomes wary of areas needing more representation. 
  5. Talent support: One way that companies can retain talented board members is through an effective support system. The company may achieve this through mentorship, training, and forums that embrace diversity and inclusion. It also helps to institute policies that flatten the playing field for minorities. 
  6. Skill-based frameworks: A skill-based framework considers core skills, experiences, and expertise when deciding who should sit or continue on the board of directors. It’s generally an effective strategy for overcoming tokenistic appointments, which tend to underrepresent some groups. 
  7. Competent wage structures: Companies should ensure a competitive compensation structure for outside directors to avoid discrepancies that could trigger feelings of underappreciation. 

Wrapping Up!

The significance of diversity and inclusion in boardrooms can’t be emphasized enough. Once adopted, it’s a secret formula that can catapult a company to corporate success. However, challenges are likely to crop up, which companies have to overcome, and that’s where we come in as the Center for Corporate Governance. 

CCG is a premier institution dedicated to promoting leadership excellence and corporate governance across Africa. We offer monthly corporate governance training to address the challenges companies can expect when enforcing corporate governance and provide tailor-made solutions. 

Our program targets board members, company chairpersons, top executives, business owners, senior leaders eyeing board roles, middle managers, entrepreneurs, and other corporate leaders. So far, we’ve trained more than 7000 corporate leaders in our region. Check out more details about this mastery course on our website!

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