The Importance of Diversity, Equity and Inclusion on Private Company Boards: Oversight and culture can steer board efforts.
As demographics in the United States become increasingly diverse, forward-thinking boards are determining ways to achieve more diversity of background, experience and thought in the boardroom. Although private companies may face less public scrutiny than their publicly held counterparts do, private company stakeholders — including employees, suppliers and customers — continue to demand attention to diversity, equity and inclusion to address both reputational and cultural risk for the company and its workforce. Employees are asking if the company for which they work is performing on the issues that they care about, which directly relates their connection to company values and purpose and overall employee engagement and satisfaction.
A September 2020 survey published by Deloitte and the Society for Corporate Governance noted that “most companies and/or their boards have taken, or intend to take, actions in response to recent events surrounding racial inequality and inequity; 65% of private companies answered this question affirmatively.” Private company boards have an opportunity to respond to the call for increasing diversity, equity and inclusion both in the boardroom and in their business operations.
Although diversity, equity and inclusion may be inextricably linked, they are not one and the same. Diversity refers to the representation of a group of people who have a wide range of characteristics, seen and unseen, that they were born with or have acquired. These characteristics may include their gender identity, race or ethnicity, military or veteran status, LGBTQ+ status or disability status. Equity is the practice of creating a meaningful talent experience for all professionals and promoting processes that provide even and equal opportunity for all members. Inclusion refers to the practice of making all members of an organization feel welcomed and giving them equal opportunity to connect, belong and grow.
In recent years, we’ve seen public company boards make strides here, such as adding more women and minorities, as noted in “Missing Pieces Report” — a multiyear study published by the Alliance for Board Diversity in collaboration with Deloitte. However, diversity, equity and inclusion shouldn’t be limited to public companies or government entities — it should be universal and taken up as a shared commitment to embrace substantive changes at the board level and in companies and communities. It’s important both for social impact and for gaining better business outcomes. Recent activity suggests that private boards have heard the charge and are taking initial steps toward making progress in diversity, equity and inclusion, and there is much to be done.
Diversity, equity and inclusion starts at the top
To engage diverse talent, build inclusive leaders and foster an innovative, courageous and equitable culture, we must start at the top. Boards have a responsibility to lead the way — not only in the boardroom, but also in how they govern actions led by executive management.
To gain insight on our own ability to govern inclusively, we created a “Board Inclusion Framework,” a structure to set the foundation for understanding board-level inclusion and governance, and for understanding how boards can think about promoting and embedding an inclusive culture at the organizations they oversee. It also provides initial questions board members can ask to assess their own board’s level of inclusion governance, and key insights and actions for boards to help improve their inclusion governance practices. By using this framework, evaluations of strengths and weaknesses can be determined to move towards a more equitable future.
For boards to practice inclusion governance requires intentional and genuine effort, alignment and commitment from all board members. It also involves embedding expectations for inclusive behavior and decision making into standard boardroom procedures. Private company boards should consider diversity and inclusion through these five key areas of the board’s organizational oversight:
- Strategy: Help management define a common vision for what inclusion means and embed it directly into the business strategy.
- Governance: Operate with an inclusion lens and demonstrate inclusive governance practices.
- Talent: Embody inclusive leadership traits among board members and hold management accountable for developing talent that demonstrates inclusive behaviors.
- Integrity: Hold the board and the organization accountable for setting the tone and putting inclusion values into practice both inside the organization and in the marketplace.
- Performance: Hold the entire organization — the board, management and all employees — accountable for high performance in inclusion.
As boards face issues that are increasingly complex, diversity in the boardroom and how boards govern diversity, equity and inclusion at the organizations they oversee is not only a trend, it is an imperative. A wide range of perspectives is critical to effective governance. As more points of view and experiences are considered, the more likely the board can prepare for unique situations. And the more diverse a board is, the less chance a company has of stagnation and getting left behind. But it’s not enough to just be diverse, boards must also remember to foster an inclusive and equitable culture.
Don’t forget the importance of culture
Along with having a diverse and inclusive workforce, companies must also focus on the importance of culture. According to research by the Harvard Business Review, diversity alone doesn’t guarantee a better performing board and firm. Instead, “the culture of the board is what can affect how well diverse boards perform their duties and oversee their firms.”
Inclusion and equality should be a cultural standard, and it’s up to board leaders to govern as such. They should be open to elevating and soliciting all voices, respecting all opinions and appreciating those with differing experiences and viewpoints. This can help mitigate risk and reduce interventions to inequities that exist today and have resulted in bias and inequitable outcomes for some facets of the workforce. That goes far in bringing the best ideas to the table. Lastly, measure progress. In being accountable and measuring diversity progress, boards will see if their companies are genuinely inclusive and demonstrating equity.
The work is continuous. Boards should be constantly assessing the level of inclusion governance maturity and discussing ways to improve. For example, Deloitte’s Inclusion Governance Maturity Spectrum defines five possible stages of maturity at which boards operate in the inclusion governance journey: compliant, emergent, embracing, integrated and inclusive. Private company boards can use these markers as a way to measure progress against themselves and to demonstrate their progress toward being truly inclusive and promoting a positive corporate culture.
Carey Oven is the national managing partner at Deloitte’s Center for Board Effectiveness. She is also the Deloitte Risk & Financial Advisory chief talent officer with nearly 30 years of client service experience. She is a thought leader on topics of corporate governance, compliance, culture, talent and risk. Debbie McCormack is the managing director of Deloitte’s Center for Board Effectiveness. She engages with clients to expand and enhance relationships with board members and associations with the Board Opportunities program and role-based programs within Executive Accelerators. She also manages the day-to-day operations of the center.