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Markkula Center for Applied Ethics

Board Diversity



Why Diversity is Good for Corporate Governance

Margaret Steen
Board room diversity

Why don't corporate boards include more women and minorities? At a recent meeting of the Business and Organizational Ethics Partnership at Santa Clara University's Markkula Center for Applied Ethics, panelists took on this question in a panel called "Board Diversity."

The moderator was Katharine Martin, a partner and board director at Wilson Sonsini Goodrich & Rosati. The panelists were Barry Williams, board director for PG&E and president and former managing director of Williams Pacific Ventures; and Abby Adlerman, founder and CEO of Boardspan.

Williams, who is African American, discussed his service on the boards of a dozen public companies during his career. He is now reaching "the age or time limit" for corporate boards, he said, and he wants to make sure younger minorities have the same opportunities he had.

Williams conducted a "one-person study" of Bay Area companies and found that only 24 percent had an African-American director. The number is lower among tech companies. He added statistics for other minorities and women and showed the results to other directors and CEOs. He also compiled a list of black directors currently serving on boards, plus a list of black CEOs and chief financial officers, two common positions from which board members are drawn.

"Most people I talked to were surprised at the extent of the underrepresentation," Williams said. "They couldn't understand why they weren't getting these names from the search firms."

Since he completed this study, he has worked with others to broaden the effort to include other regions.

"My overall impression is that a lot of people are doing a lot of work on this issue, but I'm not seeing as much success as I'd like," Williams said. He said leadership by CEOs is needed — "CEOs listen to fellow CEOs more than to someone like me" — as well as pressure from institutional investors.

He also stressed the importance of all groups working together on board diversity, so that there isn't just one "diversity slot" on a board. "Somehow we're all fighting against each other for that one spot," Williams said.

Adlerman said boards need to see the need for diversity: "One of the things I've learned is that you can't have a solution if you don't have a problem," she said. "I don't think we've really put our finger on the pulse of the problem."

She cited common statistics used to build awareness: the huge influence women have in the economy as employees and consumers compared to their small presence on corporate boards.

"We have lots of advocates and awareness, but no viable solutions," Adlerman said. "These are not really the board's problems."

The real problem, Adlerman said, boils down to risk. "It is risky to bring another board member on unless you can get exceedingly comfortable with their ability to contribute and work style. Sitting directors want to minimize the chance of disharmony," Adlerman said.

"We know it's not a supply problem: There are plenty of talented people," Adlerman said. "I don't think it's a demand problem – I believe intellectually plenty of white men sitting on boards would like to have more diverse boards."

The problem, Adlerman said, is how to help boards manage the risk of bringing in someone they don't know. "I think that if we can really get to understanding the risks that are perceived, we're going to make some really good progress."

During the discussion, the panelists revisited the arguments for having a diverse board.

"A significant amount of work now says that diverse groups make better decisions," Williams said. "Today's young people want to work in highly ethical, highly principled companies, and diversity is a big aspect of that."

"We are bringing a broader perspective to the boardroom—that's the benefit of diversity," Adlerman said.

Martin asked a follow-up question about the supply issue: whether there really are enough women and minority candidates for boards with the specific experience boards are seeking in different industries. Tech companies, for example, may seek board members with engineering backgrounds.

Williams said company management was the more appropriate place to be looking for specific technology expertise. "To me the worst boards are when you have 10 people who think alike and have the same experiences," Williams said.

Margaret Steen is a freelance author.

Dec 1, 2015