This blog post is based on Episode 4 of The Corporate Director Podcast. This episode features Erin Lantz and Jonathan Nelson. Erin Lantz is corporate director of TrueCar, and VP and GM of Mortgages for Zillow Group, and she has an MBA from Harvard. Jonathan Nelson is Head of Research at CGLytics, a corporate governance data and analytics platform that covers over 120K people across 5,000 companies.
On a recent episode of The Corporate Director Podcast, we sat down with Erin Lantz and Jonathan Nelson to discuss the facts on board diversity. We were lucky to have guests with such relevant and engaging perspectives on this issue: Erin Lantz, an experienced corporate board member, and Jonathan Nelson, the Head of Research at CGLytics.
Diversity Drives Better Performance
“Research is clear: Diversity drives toward better business outcomes.” — Erin Lantz
Beyond the morality of driving diversity, there’s a less altruistic reason boards should be concerned with diversity: Simply put, diversity makes businesses more effective. Specifically, in these 2 categories:
1. Higher profitability
Companies with ethnic, cultural, and gender diversity tend to be correlated with higher financial performance & profitability. Lantz pointed out that some research has shown that work cultures with ethnically diverse teams are 33% more likely to outperform their peers in profitability.
2. Competitive edge
Diverse teams tend to deliver a competitive edge in terms of being able to attract top talent and improve decision-making and employee satisfaction.
We talk more about how diversity enhances a firm’s performance in this blog post.
The Diversity Duality: More Women, More Members
Taking headlines piece-by-piece makes it difficult to digest the issue of diversity. Basically, we all want to know:
Are boards becoming more diverse?
CGLytics recently released their 2017-2018 Boardroom Diversity Report, and here’s what they found:
33% of new appointees in 2018 were women, up from 25% in 2017. This seems to paint a rosy picture, but we have to look closer:
Over this same period, many boards increased their membership. Overall, the new average size of board has been 1-upped to 11. So, all in all, there was only a 1% in board diversity.
Why Are Boards Lagging?
So, if research shows that diversity enhances performance, why are some boards lagging behind on the diversity front? It’s an issue that starts well before the board, in the talent pool from which candidates are selected.
Executive management comprises much of the pool for director candidates. The C-suite has historically lagged behind on issues of diversity. Further, the average tenure of directorships has increased over the last few years, allowing less seats to become available to younger and more diverse board members.
How Current Board Members Can Help Increase Diversity
The area that would most help increase diversity is improving the diversity within the director candidate pipeline, which typically comes from the C-suite. If executive-level management can begin to change its attitudes and behaviors around diversity, the director pool increases, paving the way for a more diverse boards.
Secondly, directors (especially those who are under 50) have different avenues of networking than their fellow board members. If next-gen directos can leverage their networks to provide highly qualified talent, we may see the tide turn more quickly.
A Few Tips on Acclimating to a New Board
Lantz offered some practical advice for boards (and board member candidates) to help new directors acclimate to their new seats:
- Provide more structure for onboarding
- Give a holistic picture of the company (adding more focus on touring facilities, offices, factories, and workplaces)
- Make formal connections to executives and other stakeholders
- Allow informal connections, initiated by tenured board members
- Have new directors sit in on as many meetings as possible
Lantz’s Most Fascinating Recent Read on Corporate Governance:
We ask every director on our show to share one recent read that has impacted their perception on corporate governance. Lantz pointed to a Harvard Law School report that discussed innovative board practices of Netflix, in particular their focus on narratives
Taking a cue from that report, here’s what Lantz suggested:
Before quarterly meetings, every director should be given a narrative of how the company is (broadly) functioning, operating, and performing. This way, when the board meets, everyone is on the same page, and can focus their energy on strategic issues.
(For the full paper about board practices at Netflix, click here.)
Board Minutes — rapid-fire statistics every director should know:
- In the Russell 3000, only 10% of directors are 50 and younger
- 6.3% of S&P directors are 50 or younger
- Roughly 20% of board directors are over 70
- 20% of firms in Russell 3000 have no female representation.
- Average tenure of directors exceeds 10 years
- Average age of S&P directors is 63
This Week’s Board Minutes came from this report by the Conference Board.
This post is based on Episode 3 of The Corporate Director Podcast, hosted by Dottie Schindlinger and Meghan Day, with special guests Erin Lantz and Jonathan Nelson
If you don’t use iTunes, you can also listen here.