The push for board diversity has gained momentum in recent years, in part as an acknowledgment that a board’s needs are changing in response to an increasingly complex, competitive, and dynamic operating environment. The advent of disruptive technologies, geopolitical shifts, and evolving consumer behaviors and expectations has compelled boards to adopt a more expansive approach to oversight, strategy, and widening the lens on the risks that could harm the company. Recent retreats by ISS, Vanguard, and others of a full-throated endorsement of board diversity should be viewed for what they are – a calculated risk mitigation strategy in response to the current political climate and recent legal decisions around diversity mandates. The factors that underpin a commonsense business case for demographic diversity on boards are as relevant as ever.
I served on the executive leadership team of the National Association of Corporate Directors (NACD) during a pivotal period when ESG, board diversity, digital transformation, and competitive disruption became mainstream on board agendas. Talking with board members and experts, one thing became clear: There is a link between attitudes toward board diversity and the mindset around managing competitive disruption. In order to provide effective oversight, a board’s composition should map to both short- and long-term company strategy. The same mindset that once dismissed the competitive potential of upstart streaming services, ride-sharing platforms, or app-based banking companies is also the mindset that is not questioning long-held assumptions about who makes a good member. If you are not thinking differently about who should be sitting around the table, you are likely not thinking differently about key questions around strategic risk, such as, “Who’s our competition? What business are we in (or should we be in) now? And, what emerging risks could materially impact the strategy?” hat emerging risks could materially impact the strategy?”
Triangulate the insights above with shifting demographics around everything from consumer buying power and the makeup of the workforce to who holds advanced degrees and the war for talent, and the case for board diversity becomes even more compelling. We cannot expect that a legacy mindset will serve us in a world that is changing rapidly. The recent backlash against diversity initiatives does not negate these realities. And, the backlash does not fully reflect the reality on the ground. The investor-led board diversity group InvestAhead interviewed directors, including a majority who self-identified as politically conservative, about their attitudes toward board diversity. The findings revealed strong support, but how it gets framed matters. An output of that research, their Board Diversity Language Toolkit, is a powerful resource to support making an effective business case for demographic diversity on boards. is a powerful resource to support making an effective business case for demographic diversity on boards.
Given the dueling pressures of a changing regulatory landscape and the compelling business case for approaching board composition more strategically, shareholders advocating for diversity becomes even more crucial. Proxy votes on diversity initiatives will increasingly reflect investor commitments to governance best practices. Those who create value for shareholders are sending a clear message: Ensuring diverse board composition is a fiduciary responsibility – linked to long-term value creation and sustainable performance.
Erin Essenmacher
COO, Conscious Capitalism
Former President, National Association of Corporate Directors