Diversity on Corporate and Nonprofit Boards Is Improving. Here’s What Else Can Be Done

BRG’s Tom O’Neil and Doneene Damon, president of law firm Richards, Layton & Finger, P.A., discuss how diversity is being implemented on boards across the country, and why it can’t come soon enough.

Diversity is improving within boardrooms. The number of directors from non-white ethnic groups on companies in the Russell 3000 stock index jumped by nearly 50 percent over the last two years. But in total, underrepresented groups still occupy just 17 percent of board seats, and women account for only 27 percent of directors.

To talk about this evolving issue, we sat down with BRG Managing Director Tom O’Neil and Doneene Damon, the first woman and first African American to lead a major Delaware law firm. Over the past thirty years, Damon has sat on numerous nonprofit and private boards; she currently serves as a director for two private companies. O’Neil has worked extensively in the private and public sectors and has held leadership roles in boardrooms and C-suites of several companies. 

Q: There’s an increasing realization that companies with more diversity on their boards perform better financially—26 percent better, according to one study. Those numbers have been around for a while, so why do you think some organizations still haven’t gotten the message?

DD: Some organizations see the value proposition of having a diverse board, but most do not. They still don’t view diversity as a business imperative, rather a moral imperative—something trendy, an issue du jour—as opposed to a fundamental component to success. 

TO: At least in my view, there are two worlds where progress has been more demonstrable. The first is that of nonprofit organizations, because their community-based missions tend to underscore the importance of diversity for their stakeholders. The second comprises public companies; they’re held accountable by two critical stakeholders: regulators and investors. The challenge, in my view, is the broad swath in between; that is, private companies, where embracing diversity as a core value rather than an inchoate competency has been a struggle.

Q: Have you heard counterarguments to the importance of board diversity? If so, what are they—and how do you typically respond? If you don’t hear a lot of specific counterarguments, is the resistance more about inertia and old habits? 

DD: The reasons vary. For private companies in the middle swath Tom mentioned, it often is inertia, and it goes back to the adage, “if it's not broken, don’t fix it.” If a company is doing well, board members wonder why they need to change. But I've also witnessed a more troublesome and almost blatant resistance to it from board members who believe making leadership more diverse means giving up seats for white men. Why does this have to be a zero-sum game? Why do we have to talk about this in terms of in lieu of as opposed to in addition to?

TO: I’ve been fortunate in that I've never experienced resistance on the boards I've served on, but anyone involved in board governance has either felt it directly or heard stories. We all need to understand that we’re in the middle of a this is a  seismic shift in the world of governance in terms of recognition of the value that is created and embracing it as an urgent priority in the pursuit of excellence. I fully expect it to be a focus area for decades to come.

Q: That brings us to the common argument that there simply aren’t enough good candidates out there. Is there anything to that argument?

DD: There actually is, and it goes to the root of the overall problem. If the criteria to make it on a board is that a candidate must be a former CEO or CFO, in addition to other narrowly crafted requirements, then there might not be enough good candidates. But that’s because the scope of the searches is too limited, not because there aren't qualified individuals who can add value and contribute to the board.

TO: Some organizations have come to understand that antiquated governance models are no longer optimal. Quite apart from diversity and inclusiveness, recent studies have shown that in an increasing number of boardrooms, a former CEO or CFO is no longer the most coveted profile. As we reevaluate the expertise, competencies, and perspectives that, collectively, optimize the performance of a board, there is more than ample room to prioritize diversity and inclusiveness.

Q: Doneene, has your experience changed over the time you’ve been on boards? Has it gotten better as board diversity improves (gradually or incrementally)?

DD: My experience in the boardroom now is vastly better than what it was thirty or even fifteen years ago. Early on, for both nonprofit and private board service, I was brought in only because someone told them they needed to have diversity in the room. I was a bit naïve for taking those opportunities and thinking I’d have a voice. It quickly became clear that I was not being viewed as a value-add or someone who could meaningfully contribute.

I opted to step off of a couple of boards for those reasons, but I explained my thinking with the boards in the process. It was an eye-opening experience, because they expected me to sit in a corner and not be seen or heard. Eventually, I joined other boards and learned how to find my voice and use it effectively. Because of the questions I would ask, and the comments I would make, the other board members saw value in my contributions. Board cultures have evolved to recognize the contributions of diversity of thought and to welcome diverse perspectives.

Q: What advice would you give a person early in their career if they were looking to start being named to boards? How does that advice change if the candidate isn’t white or male? And what about when they make it to their first board?

DD: If it’s an individual who’s never served on a board, they should start with nonprofit service so they can learn what governance means. They need to get their sea legs with respect to reviewing board materials and understanding how to cultivate a relationship with other board members. They also need to learn how to ask questions, perform research, and learn the industry. As far as getting on private boards, the ramp-up is more significant, and training through organizations like the National Association of Corporate Directors can be helpful. Board members also have fiduciary responsibilities, so making sure that you're competent and capable to serve is important.

It’s important to find a mentor or sponsor who's willing to help you assimilate into the culture of that unique boardroom. You can have a tremendous skill set, but that doesn't mean that your integration into that boardroom will be smooth and seamless. Whether you’re a white male or an African American female, that part of the process is the same.

It's also important not to take opportunities presented to you simply because you can be categorized as diverse. Seek opportunities that are the right fit for you because of the skills and the experiences you have and the value you will bring to the board.

TO: I’d add that it’s important not to wait until you think you're ready to retire to serve on boards, and that it’s important to be selective. If you join a board and don't align with the inherent values of the organization or the people in the C-suite, withdrawing from a board at an inopportune time can be a gut-wrenching challenge that can also impact your marketability in the future.

Q: Let’s say the head of a company or board reached out to you today and asked for guidance on making their board more diverse. What would you tell them?

TO: Whether you're the CEO or the chair of the board, it's imperative to map a five-year strategy. Find the business case that justifies that strategy, and identify the expertise, competencies, and perspectives that you need around the table. Diversity and inclusiveness should be core values that are as fundamentally important as integrity, accountability, transparency, and acceptance of responsibility. If the board is truly committed to those values, the optimal governance model—and effective oversight—can be achieved.

Q: Board diversity has improved in the past couple years. How much of that is due to regulatory mandates as opposed to executives finally seeing the light—or perhaps something else?

DD: Many private companies talk about diversifying their boards, but they need regulation as a trigger. Some view board diversity requirements as analogous to affirmative action, and as affirmative action has been challenged in the courts, they think diversity mandates might follow suit. Companies who've gone through an intensive internal governance review and analysis have been more inclined to diversify their boards without regulatory prompting—but government requirements still make it more of a focus.

TO: Directors should engage in some serious soul-searching if, in their view, recruiting diverse candidates is a matter of checking a box to achieve regulatory compliance. If that’s the primary driver, there is a very real risk that candidates will be concerned about the organizational governance culture and that an appointee will feel disenfranchised in short order. So, I feel pretty strongly that this has to be about far more than a regulatory stick, as it were.

Q: Do you think that we have perhaps turned a corner when it comes to diversity and inclusiveness on boards? In ten years, will we look at the beginning of this decade as when things finally got on the right trajectory?

DD: The past few years will absolutely go down as instrumental and pivotal from many perspectives, especially when it comes regulatory requirements and ESG [environmental, social, and governance]. At the same time, I'm pessimistic about the effects of the COVID-19 pandemic and the Great Resignation. When I look at the number of women who have opted out of the workforce and consequently stepped off of leadership ladders, some progress we have made has been erased.

Still, over the course of my time on boards, things have improved—and my voice, skills, and experiences are absolutely valued. In some of those boardrooms in the past, I was the first diverse person. But then I wasn't the last, and I wasn't the only. And that's where this evolution really starts to have meaningful impact in positive change.

TO: That so many women had to opt out of their jobs during the pandemic worries me—and it might actually hit C-suites the hardest. It could be three to five years before we get everyone back at the table—not just in the boardroom, but at their day jobs.

Still, large public companies, under the glare of regulatory and investor scrutiny, have made their boards more diverse, with 45 percent of Russell 3000 board seats being filled by women. But ethnic diversity on boards hasn’t grown as fast, and the forward momentum we are seeing is just making up for over fifty years of lost time. Still, there is reason to be optimistic, as the voices of these new board members will result in better governance, which in turn will result in the adoption of a more inclusive set of core values, and that can make for better-run and more diverse organizations.