You've doubtless heard the expression that great minds think alike. I know of a pathologist who would voice an addendum to this particular assertion if he observed well-intended colleagues endorsing a position without exercising independent thought. On witnessing what we've come to refer to as groupthink, and with a fortunate capacity for inspiring rather than offending people, Bill would opine, "Great minds think alike ...and fools seldom differ."
While most boardroom decisions carry different weights from those associated with medical diagnostics, it's critical that those with capacity to impact an organization's outcomes expose themselves to and consider perspectives that differ from their own in making informed decisions. Ideally, decision making by consensus, conformity and deference will not represent your board's practices. In the case of trends toward groupthink or directors' reluctance to voice differing views, a corporate secretary or other governance professional who is committed to governance best practices will raise the matter with the board chair.
There may be occasions, though, when directors hesitate to express alternate positions or challenge assumptions that form the basis of the board's deliberations. There's potential for this when it comes to both experienced and novice directors, and so board refreshment and recruitment practices can play critical roles in a board's success.
What is Board Diversity?
Studies show that novice directors continue to make their way into boardrooms. According to the 2018 United States Spencer Stuart Board Index, 22% of S&P 500 boards added two or more new directors during the 2018 proxy year and another 35% added one new director during the same period. While the average addition per board worked out to slightly less (0.88) than one new director per board, one third of the 428 new independent directors appointed to the 485 S&P 500 boards during the 2018 proxy year were serving on their first public company boards.
More than a third of all new directors in this group of next-gen directors have telecommunications or technology backgrounds. Only 35.5% of the S&P's 428 new directors have prior experience as active or retired CEOs, chairs, vice chairs, presidents or COOs. Given that more experienced directors may have not only senior executive experience but also significant tenure on their respective boards, would it be surprising if some first-time directors are at least initially inclined to be deferential at times to the voice of more seasoned directors?
To capitalize on board diversity, then, it's important to ensure that novice directors are supported through effective onboarding and developmental offerings. Today's boards are expected to provide leadership and oversight of non-traditional matters, including cybersecurity, technological and environmental, social and governance (ESG) issues. Increasingly, directors and boards need to anticipate and be prepared for shareholder activism and expectations. The sooner novice directors from different backgrounds find their feet and refine their grasp of board and organizational culture and operations, the sooner they can effectively apply their diverse lenses to governance deliberations.
Consider current recruitment practices. Those 428 new independent S&P directors recruited in 2018 represent an eight percent leap from the prior year and the most new independent directors since 2004. The 2018 United States Spencer Stuart Board Index reported that, as of 2018, 17% of the independent directors of the top 200 companies (by annual revenues) were minorities. That's a modest three percent increase from one decade earlier.
Nineteen percent of those new directors are minority executives ' 10% of them male and nine percent of them female. Spencer Stuart reported that, in total, 50% of the new directors identified in the study are women and/or minorities.
Importance of Gender Diversity
Let's look further at gender diversity. Egon Zehnder's 2018 Global Diversity Tracker report tells us that, globally, 20.4% of board seats were held by women in 2018. That percentage climbs to 22.5% in the USA and 27.8% in Canada. These percentages remain modest in comparison with France, where 42.1% of board seats last year were held by women, and with four other western European countries where such percentages exceed 33%. Globally, 84.9% of boards have at least one female director.
Board diversity may also be reflected in individual directors' age and tenure. Egon Zehnder's study found that, globally, the average age of directors in 2018 was 60.8 years. Women brought the average down slightly, as the average age of female directors was 58.2 years compared to 61.5 years for male directors. In Canada and the US, the average age of directors last year was, respectively, 63.0 and 63.2 years.
Is your board actively recruiting for diversity of age around the boardroom table? The 2018 United States Spencer Stuart Board Index reported that 17% of the 428 new independent directors appointed to the 485 S&P 500 boards during the 2018 proxy year were aged 50 or younger upon selection. The report found that the average age of new independent directors remained relatively unchanged over the past decade. That may begin to shift with the arrival of more first-time directors, as the average age of last year's first-time directors was 54.7 years.
Your board needs to be equipped to provide oversight of environmental, social and governance (ESG) issues, and to be prepared for shareholder activism and expectations. In recruiting for directors with relevant qualifications, there's a likelihood that recruiting for such expertise may also bring greater age diversity to your board.
Board Refreshment
Board refreshment and establishment of mandatory retirement ages can also impact board diversity. According to the 2018 United States Spencer Stuart Board Index, 71% of the boards in its study have established mandatory retirement ages. However, that represents a decline from the prior year in the percentage of boards with such practices ' and a full decade earlier, that figure was three percent higher. It's also worth noting that the mandatory retirement age for a whopping 96% of the 2018 study's boards was 72 or more years of age.
When considering how to improve diversity in your boardroom, take a look at your board matrix. Ideally, yours will have evolved along with governance practices and your criteria will extend beyond executive experience and areas of expertise. Boards are also paying attention to gender, minority representation, and diversity of not only age but also tenure on a specific board. If your board is committed to improving diversity around its table, you as a governance professional can support that vision by cultivating a culture that is supportive of not only newcomers but also diverse views. Re-examine onboarding practices, and consider whether meetings and strategy sessions encourage exchange of diverse views that can benefit decision making, good governance and the organization itself.
