9/28/2022
Is Your Board Inclusive — or Just Diverse?
Harvard Business Review (09/28/22) Peterson, Randall S.; Gardner, Heidi K.
Research from Randall S. Peterson, a professor of organizational behavior at London Business School, and Heidi K. Gardner, a distinguished fellow at Harvard Law School, explores how boardroom behaviors change when boards become more diverse, and what boards can do to ensure that increasing diversity actually has a positive impact on both the board and the organization at large. Specifically, they analyzed data regarding the link between director diversity and financial performance for the entire FTSE 350. They then conducted a series of in-depth interviews with nearly 100 global board directors in which they shared qualitative descriptions of their boardroom dynamics and completed a structured, 40-question survey designed to quantify their board's inclusivity and behavioral patterns. Through these analyses, they found that diversity can substantially benefit boards, but only when directors' input is heard, valued, and truly incorporated. The research identified two main benefits of inclusion. First, when directors from underrepresented groups are effectively integrated, boards exhibit a more collaborative decision-making process. Second, this more collaborative decision-making process drives better firm performance and shareholder relations. Specifically, companies whose boards had well-integrated female directors experienced 10% higher stock returns, and their shareholders were 8% less likely to formally dissent to board decisions, than those that diversified without prioritizing real inclusion — even if the board only had one woman. The researchers identified several common challenges that kept women and people of color from becoming integrated into their boards. First, it takes time to build credibility in the boardroom. Second, directors from underrepresented groups often have resumes that cause them to be viewed as lower status than their white male counterparts. Finally, many new directors who were from underrepresented groups also came from relatively high socioeconomic class backgrounds, making it easier for them to build trust with existing directors. The research found that while boards have been appointing a lot more women, those women are almost exclusively white and from high social class backgrounds. These higher-class, white female directors tend to bring fairly similar perspectives as existing directors, meaning that even boards that have become more gender inclusive often still have a lot of work to do when it comes to recruiting and embedding people with multiple compounding disadvantages. To gain access to truly diverse perspectives, it's critical to acknowledge the importance of social class and other intersectional identities beyond just gender and race. Across the interviews, the researchers consistently heard that the single most important ingredient for a diverse and inclusive board was a chair who was considered to be a good listener. As a board diversifies, it becomes all the more critical for the chair to actively seek out and understand different directors' perspectives, and help the whole board appreciate contributions from all their peers.
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