Driving Diversity in the Boardroom

Corporate Governance Driving Diversity in the Boardroom

Diversity is a hot topic these days and, while others talk about what should be done, America’s CEOs are putting their values into practice in the search for more diverse and effective boards of directors to lead their companies.

Creating long-term shareholder value is a top responsibility and focus for CEOs. To achieve this goal, our corporations need leadership teams with the broadest and deepest perspectives and backgrounds.

As part of corporate America’s commitment to lead this important initiative, Business Roundtable — an organization representing CEOs of major U.S. corporations that generate more than $7 trillion in annual revenues while employing millions of Americans — is adding a new emphasis on boardroom diversity.

As will be emphasized in the forthcoming update to the Business Roundtable guiding Principles of Corporate Governance, which set the standard for best practices in effective, ethical corporate governance, business leaders agree:

Similar to our efforts to promote diversity among our management ranks, diverse backgrounds and experiences on corporate boards, including those of directors who represent the broad diversity of American society, strengthen the performance of a board of directors and promote the creation of long-term shareholder value.

What steps should businesses take?

Business Roundtable CEOs also agree that boards of directors should develop a framework for identifying appropriately diverse candidates, which asks the nominating or governance committee to consider women and/or minority candidates for each open board seat. This simple, but meaningful, change in practice should give momentum to the push for board diversity.

Securities and Exchange Commission Chairman Mary Jo White recently identified board diversity as an important issue for the commission in 2016. Corporate America is making progress on the diversity front, yet Business Roundtable believes more should be done — and we are ready to put forth the required leadership.

The reality is, despite recent improvements, women and minorities remain underrepresented on corporate boards relative to the general population. A recent study by the U.S. Government Accountability Office found that the proportion of women serving on the boards of S&P 1500 corporations doubled between 1997 and 2014, and more than one-fifth of new members appointed to S&P 1500 boards in 2014 were women. At the same time, the study found that at that rate it could take more than four decades for women’s representation on boards to reflect the overall talent pool from which companies hire.

While studies differ on whether a company’s improved financial performance correlates with greater gender and racial diversity on its board, many executives agree that their companies benefit from an environment that promotes diverse backgrounds and perspectives.

This appreciation comes not only from what people learn directly in their careers, but also from looking around the country. The diversity of thought and perspective within our society accounts for much of its resilience and strength — and it adds to the abundance of good decision-making. Differing perspectives and maintaining respect for the individual enable Americans, as well as American corporations, to prosper.

Moreover, corporate executives increasingly understand that to compete in a diverse global marketplace, companies need to attract and retain the best talent, which includes tapping into talented women and minorities in the U.S. workforce. While there is not one size that fits all, promoting diversity and inclusion within both management and boards is an imperative to which all agree.

When it comes to diversity, we can meet both the demands of the competitive business world and broader social goals.

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