Driving Business Outcomes Through Diversity

  • FEBRUARY 26, 2021
  • //
  • ESG

In 2020 Catalyst reported[1] that there were 29 women who held the CEO position in the S&P 500 – this means that 5.8% of companies in the S&P 500 have female leaders. In 2021 it has been announced that 3 more women will be coming into the CEO role in Q1 & Q2. In 2020, just 4 CEO’s in the S&P 500 are black, and it has been announced that 2 of the 4 are stepping down from the role in 2021.

Looking at the numbers in 1993, according to Catalyst, women held 8.3% of board seats[2]. In 2020, 28%[3] of board roles are held by women. While there has been a concerted focus on increasing gender and ethnic diversity on boards, progress has been slow and there is still a ways to go before we reach gender parity in the board room.

However, it is important to avoid putting people in role simply to check a box and reach a quota. The foundational first step in adding a new member to the board is to create a skill matrix and identify what functional expertise is required as you refresh the board for the next 5-9 years of the company’s journey.

For example, when you look around the boardroom table, ask yourself what are the areas of expertise that can be augmented such as technology skills in AI/ML and data lake analytics, cyber/digital transformation, etc.

Once that functional need is established, then look for candidates in a rich and diverse slate and be sure to pull from historically underserved talent pools.

However, do not overlook other avenues of diversity which include generational diversity, people who bring different global perspectives, as well as people who come from different economic backgrounds. When sourcing candidates for a role it is critical to tap into a broad talent pool to get to true diversity.

An important but often overlooked component when it comes to increasing diversity in the boardroom and in the C Suite is developing the diverse talent at every level of the company so that there is a strong diverse talent bench in the company ready to move into more senior roles.

Boards can ask management to pull together what percent of people at every level of the organization from middle management to senior management are diverse.

Challenge management to identify what they are doing to improve the numbers not just in the board room and C Suite but at every level and ask what programs the company has invested in to consciously tap into interns and apprentices in underserved communities to create a pipeline of future qualified individuals.

Here are a few facts: 51% of the population is female, and about 40% of Americans identify as racial or ethnic minorities, per the latest census data. Millennials make up 40% of the working age population, this means many of your customers are made up of millennials.

Legacy brands are especially vulnerable to marketing to their baby boomer base and not revitalizing their positioning for millennials and Gen Z.

Augmenting your board with generational diversity is an opportunity to bridge this gap and attract a broader range of consumers and employees

How the company measures culture can be quantified in set targets and the specific things that are done to ensure we have a pipeline of female and ethnically diverse candidates who are moved into general and middle management and line operating opportunities. This is a topic that can be added to the annual committee calendar for specific focus in the year ahead.

Boards can also ask management to specifically identify if/how the company is tying compensation to improving the numbers across the organization.

Diversity and inclusion is an important component of ESG; ESG investing is estimated at over $20 trillion in AUM—about a quarter of all professionally managed assets around the world.

Boards and management should expect continued and increased focus from their investors on ESG topics; management and the board should expect an increase in communication to be ready to capture and share the quantitative data on what the company is doing regarding ESG.

Companies are best served to get out in front and lead and embrace building a diverse board and a diverse executive leadership team. If boards do not actively embrace this, we will see regulations and mandates as evidence by the state of California and the state of New York putting in quotas for diversity and inclusion.

The major passive investors, the index funds like Vanguard, State Street, Fidelity, etc. all have strong policies that value and reward diversity and inclusion. Companies will be graded on this and it can impact how you are valued during annual proxy voting or make you vulnerable to an activist.

Diversity at every level is important to drive engagement, debate, and to arrive at the best ideas and business outcomes.

[1] https://www.catalyst.org/research/women-ceos-of-the-sp-500/

[2] https://catalyst.org/wp-content/uploads/2019/02/1998-catalyst-census-female-board-directors-of-the-fortune-500.pdf

[3] https://www.bloomberg.com/news/articles/2020-05-15/female-board-participation-rises-in-s-p-500-index-in-april

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