As the NASDAQ’s diversity rules take effect next year, corporate boards face the continuing challenge of changing how they find and appoint new board members to become more inclusive of women, people of colour, 2SLGBTQAI+, generations, to name a few of the underrepresented groups.
The rules require each Nasdaq-listed company, subject to certain exceptions, to have, or explain why it does not have, at least two members of its board of directors who are diverse, including at least one director who self-identifies as female and at least one director who self-identifies as an underrepresented group or 2SLGBTQAI+.
Recent studies show U.S. public companies added the most diverse slate of new directors on record to their boards over the past year, but about half of the boards are lagging in new members and diversity, according to The Wall Street Journal.
So how can companies achieve real diversity while avoiding tokenism? Tokenism–the policy or practice of making only a symbolic effort–will likely end up hurting companies who try to adopt a check-the-box approach or who appear to be performative without having any true meaning or intentionality.
For some companies, these rules require seismic changes, including a deep reworking of core company values. Company values are a way of life and can determine the organization’s destiny. From attracting new hires, to retaining employees and leaders, to how your external company brand shows up, values are integral to business success. Values influence what your teams believe to be important and shape their actions and decisions. Most importantly, they are the building blocks for an inclusive company culture.
As you work towards shaping and revamping your board of directors, you may experience resistance, a feeling of moving too fast, or getting stuck in starting the journey. Questions you may want to consider:
- How transparent is your organization about its DEI policies?
- Is there a performance benefit to a lack of diversity?
- Is your board relevant, and does it consider the perspectives of emerging consumers or communities in which you serve?
- Does the board reflect the current and emerging external stakeholders?
- Are board members part of the mentoring program to develop executive talent?
Developing and maintaining a DEI strategy requires significant time, intention, training, and communication. It starts with leaders discussing the need to change, how to execute those changes, as well as gaining consensus, communicating values across the company, expanding traditional networks and creating lanes to find, support, and build and promote a diverse talent network.
Reports by McKinsey & Company consultants find diversity is crucial to business strategy—maintaining a strong company culture and talent pipeline.
Fostering a DEI strategy can boost companies’ ability to address environmental, social and governance (ESG) issues, better represent stakeholder and shareholder needs, and align with consumer and market trends, according to research by Harvard Business Review. Companies must internalize the need for transformative change across their own organizations, as it impacts not only client perspectives, how RFPs are drafted, donor base for nonprofits, and the ability to recruit top talent. This requires consistent intention.
Among the many advantages to enacting DEI strategies are: improved business outcomes, broadening business strategy and objectives, reaching a wider audience, improving company culture and employee retention.
Companies like Vanguard have continued making strides on this initiative, with Tara Bunch announced as a new board member.. She joins Dr. David Thomas on the twelve-member board. Vanguard has been advocating for gender diversity on boards since 2017, and has set worked toward goals for inclusion and improved representation across its crew under Chief Diversity Office Crystal Hardie Langston.
So how can companies incorporate a DEI mindset and cultural changes for their business?
Be transparent about your DEI vision.
Set specific diversity goals, commit to measure them, as well as sharing them with stakeholders, so that stakeholders can hold the board accountable. Get comfortable having regular conversations about underrepresented groups.
Get intentional about choosing a diverse slate of candidates:
Reject recommendations from the nominating and governance committee and executive search firms that fall short of diversity goals the board set or that fail to satisfy requests the board has made. Communicate and reinforce the commitment to DEI and willingness to look outside the usual places for candidates. Consider whether you need to refresh your board to remove underperforming directors to encourage turnover.
Sponsor or develop diverse executive talent:
HR departments need to recruit more executives from underrepresented groups. Also, businesses need to institute internal mentorship and sponsorship programs in which existing board members participate.
The New York Stock Exchange, led by Stacey Cunningham, its first woman president, described a CEO-network-based initiative that has placed 19 candidates on corporate boards in the last three years, according to a recent interview in Trader’s Magazine. https://www.tradersmagazine.com/am/cunningham-expects-more-direct-listings-at-nys
One CEO of an S&P 500 company looked to the startup world for its new female board member, who brought much-needed digital strengths and lowered the board’s average age group.
SaaS platforms and technology can help companies find hidden talent and begin to build the DEI pipeline.
NASDAQ requirements will serve as the guardrails for significant board change. But it will take leadership, metrics, training and coaching to build the inclusive culture that will position companies for future success.