Private Company Director

The Many Definitions of Board Diversity

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Diversity is more than just a societal hot-button.

Board diversity can take a lot of forms. It should be noted diversity is not a political term, but rather a means of creating value. Diversity broadens board perspective, reveals additional alternatives and improves business value for owners and the value of the board for leaders. 

Diversity can and should mean different things for different companies. A construction firm in the Midwestern United States was expanding into the Southeast and needed geographic diversity. Contacts and business referrals had been important over the years. All the directors were from the Midwest, and one was retiring from the board. The company was considering how to approach director succession. 

Generally, a first step is for the board to define skills and experiences that will be valuable in supporting the envisioned future of the business. The answer is unique to each company. In the case of the Midwestern construction firm, one of the criteria was a strong network of potential client contacts in the Southeastern United States. 

Here are examples of how other companies define diversity: A chain of family restaurants served a high proportion of people of color. A goal was to identify people of color with the needed skills and experiences to fill a seat on the board. 

Purchase decisions for a home furnishings company were made primarily by women. Yet all but one of the people on the board were men. A goal was to identify women with the skills and experiences needed to fill a couple of seats opening on the board. 

As these examples illustrate, goals for diversity can be tied directly to what’s important for the future of each business.

People often prefer candidates from the same industry. Yet others from outside the industry with experience in particular areas can be equally helpful in supporting the envisioned future (think mergers and acquisitions, digital innovation or international expansion). 

People often prefer CEOs, COOs or CFOs in their candidate searches because people in these roles have had comprehensive financial responsibility and business oversight. But leaders in human resources as well as marketing and business unit leaders with the needed skills and experience represent a way of opening up a more diverse candidate pool.

A company looking to grow often wants candidates who come from a larger company, since they’ve been where the company wants to go. Yet, in an area like digital innovation, an independent director with those skills and experiences coming from a smaller company may nevertheless be highly valuable. 

Think Outside Your Network

When a board relies on networking to fill open seats for independent directors, it can be more difficult to create diversity. An alternative more likely to succeed involves an outside firm in the business of helping owners and the board define skills and experience needed for the future. The outside firm can identify a range of diverse candidates that meet the criteria. They can also help facilitate an effective final selection and orientation process. 

Recently, a firm identified two diverse independent director finalists for two open board seats. One was a woman and the other a CEO who was younger than anyone else on the current board. The finalists came together at the same time for dinner with the owners and the existing board. The next day, they took a company headquarters tour, listened to top leader presentations and engaged in a simulated board meeting that considered a strategic opportunity that leadership was actually grappling with. The finalists came prepared, having read and thought about the opportunity presented in a pre-read. They listened closely and asked insightful questions. There was a sense of mutual respect in the room. Differing views were offered with graceful assertiveness. The finalists built upon each other’s ideas. At the end, both finalists were invited to join the board. The productive collegiality demonstrated in the context of the simulated board meeting was decisive. 

Diversity is more than gender and race — though, depending on the business, gender and race can be important or even dominant considerations. In an outside-facilitated search, there are often hundreds of initial candidates. Depending on the number of open seats, they’re sorted down to ten or twenty for initial virtual interviewing. It’s good practice to ensure there are plenty of diverse candidates in the pre-finalist group of 10 or 20 with the skills and experience to help support the company’s envisioned future. From that point forward, desired diversity can be a positive tiebreaker in driving toward the finalist phase. 

There’s Strength in Diversity

In its best form, diversity adds strength to a company board. Its criteria consider the future through the lens of the company’s customers, employees, suppliers and communities. Diversity produces new ways of looking at problems and opportunities, adds alternatives and creates value. 

Overall, diverse directors with skills and experiences that support an envisioned future help increase board effectiveness. That boosts company performance. Better company performance serves the needs of shareholders and everyone associated with a business. 

Rob Sligh serves on the board of directors for Utility Supply and Construction Company and on the advisory boards of Spectrum Industries Inc. and Erhardt Construction. He is a senior consultant for The Family Business Consulting Group Inc. 
 

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