February 12, 2013 - Diversity in the Board Room: A Critical Element of Corporate Success
Veronica Biggins began with a seemingly simple question: What, exactly, is diversity?
But of course, as any director knows, that apparently simple question isn’t simple at all, and once you ask that question, so many more inevitably follow: What does diversity really mean in the context of the boardroom? What should diversity mean in today’s challenging business climate? What should diversity look like? How can boards that are striving for “diversity” actually achieve it—and how will they know when they’ve struck precisely the right balance?
These are the kinds questions that directors and executives are asking with increasing frequency these days, as companies of all sizes—from Fortune 500 giants to regional mom-and-pops—recognize the crucial importance of building and maintaining a diverse board.
Everyone, it seems, agrees that this “diversity” holds potentially huge benefits. But nobody is quite sure, at least not yet, how “diversity” is actually defined, or achieved. As as it turns out, there might be a good reason for that: Diversity means many different things to many different people, and to many different companies, too. And that’s not necessarily a bad thing.
As three experts recently told a gathering of the Philadelphia Chapter of the National Association of Corporate Directors, efforts to achieve diversity in the boardroom are without question on the rise, and for good reason: Diversity not only brings deeper and more varied insight to boardroom discussions, but also helps companies more easily and efficiently meet their long-term strategic goals.
But while those three experts—Biggins, a managing director at Diversified Search, H. Edward Hanway, chairman emeritus of Cigna Corp., and Nancy Reardon, a director at Warnaco Group Inc.—all agreed on the myriad benefits of diversity, they also noted that there is no single path or no single “best practice” for building a diverse and effective board. Rather, they say, companies should always remember that while diversity is important, diversity should not be sought for diversity’s sake—and they should never go into their diversity-building efforts with a preconceived notion of what diversity actually is.
“If I went around this room and asked you all for your definition of diversity, I would get many different answers,” Biggins said. “Everyone has different thoughts on what it means, and boards are struggling with that question, too.”
Biggins can speak with authority on that point. She previously served as Director of Presidential Personnel under President Bill Clinton and, at Diversified Search, helps companies from all sectors build diverse, effective boards.
She has seen some companies do this well, and some do it not so well. But like the other experts on the panel, she said the most important thing for companies to remember is that they should be seeking the kind of diversity that makes sense for them, and for their goals—and not the kind of diversity that may work for other companies in other sectors.
It’s a key point, she said, but unfortunately, one that many companies forget.
“If you think about including all and being open to all, then it really opens you up,” she said. “It’s about age—not just the upper end but also the lower end. It’s about skills, and really thinking about what kind of skills your board needs. It’s about asking what your board looks like—not just from the gender standpoint and not just from the race standpoint, but also from the skill standpoint. … The reality is, Southwest Airlines needs a different kind of board than an IT company does.”
Hanway, who has witnessed a remarkable diversification of the board during this time at CIGNA, agreed wholeheartedly with Biggins’ assessment, and stressed once more the importance of making sure board diversity is synched up precisely with the needs, demands and shortcomings of any particular company.
As he pointed out, when CIGNA set out to diversity its board starting about six years ago, it did not follow conventional wisdom. Rather than picking out the usual suspects or obvious candidates from the typical talent pools, the company went about its search in a much more strategic manner, casting a wide net to grab talents that other top companies may have missed. CIGNA recruited board members from companies as diverse as Harley Davidson and Vanity Fair and BellSouth, with each candidate being brought on board for a very specific reason: Their unique talent in an area in which CIGNA needed more expertise.
“The building of a diverse board should be aligned closely with corporate strategy,” Hanway said. “It really will be most helpful for you and your team if you align the board [composition] with your company’s strategic vision. And beyond that, from a board member perspective, it’s much more enjoyable as well, because the kind of discussion that goes around the boardroom with diversity is just more rewarding.”
According to Hanway, three important trends in board diversity have developing over the past few years. First, he said, there’s been a striking power-shift in the realm of board recruitment, as boards and directors are taking a much more active role in board-building than in years past, when the CEO was more likely to take charge. Second, he said, boards today are more likely to seek directors with a keen sense of public relations savvy—an important skill in today’s turbulent, closely watched market. Finally, and perhaps more importantly, he said, there is now a widespread acceptance of the notion that “diversity” must be thought about in the broadest sense possible. It’s a crucial shift, and in the end, a good one.
“It’s often been thought about in terms of race and gender, but I think that interpretation is somewhat dated,” Hanway said. “Diversity now must also include technological skills and marketing experience. Do you bring enough to the table to understand those areas in your industry? There’s also the reality that whether you do business locally or internationally, you are inevitably ‘global.’ So an appreciation for the [details] of international business and international business protocol is extremely important, too.”
The lingering question, however, is obvious: Where does one actually find these individuals?
How exactly can a nomination committee locate the kind of talent that can make their boards more diverse, more skilled and more effective?
To hear Reardon tell it, the answer is to think outside the box—and look for great directors in places that one might not typically look for great directors. In this new and challenging business climate, Reardon said, it’s more essential than ever that companies be creative in their efforts to seek out new talent—either for the C-Suite, or the boardroom.
If you want diversity, she said, you must actively seek it out—and that requires work.
“You never know where good connections can be made,” she says says. “In my years in private equity, very often we would cast the net really wide and make sure we were touching base with all of our independent directors, our bankers, our lawyers—just using their realm of contacts, too, as we were looking for board members. There are a lot of different places you can go.”