How to Increase Board Diversity

Over the past decade, great inroads have been made to the composition of boards in the context of gender balance; the number of women on boards has risen to 35% (up from 19.3% since 2015). The challenge, however, could be that people perceive the necessity for increasing or improving board diversity is no longer urgent.

But is gender the only way to achieve diversity? That would seem not very diverse.

To think that 30% of women on boards is ideal ignores the real-world gender ratio of 49.3% male and 50.7% female. And when only 10% of directors are from non-Anglo-Celtic backgrounds, and the average age of board directors is remaining steady at 60.5 years of age, we aren’t really at the point where we can sit back and drop our focus on true diversity. 

Furthermore, achieving board diversity is not an endgame. You never get ‘there’. Establishing the best board is an ever-evolving process where the right composition must be set and achieved again and again as business and broader economic challenges are faced and addressed.

Why diversity matters

By the end of 2023 (when this article was written), we are well-versed in the benefits that can come from diversity. However, a revisit may be beneficial. A frequently cited study in the Strategic Management Journal demonstrated that both gender and ethnically diverse boards are more likely to:

• Create an environment in which the diversity that female directors bring is welcomed and viewed favourably.
• Have nominations that are based on candidates’ qualifications.
• Result in a more ethnically diverse female body that mirrors the ethnic diversity of firms’ stakeholders.
• Accentuate the positive impact of female directors on accounting performance.
• Have shareholders who believe that ethnically diverse boards are more attentive to diverse needs and better protect their interests, and hence view favourably boards’ gender diversity.

And catalysing research conducted in 2015 by McKinsey demonstrated that more diverse companies were better able to secure top talent employees, improve their customer focus, increase employee satisfaction, and improve decision making, leading to an ongoing cycle of increasing returns. McKinsey suggests that even “diversity in age, sexual orientation, and experience (such as a global mind-set and cultural fluency) are likely to bring some level of competitive advantage for [diverse] companies.”

Diversity should not start and stop in the boardroom though. McKinsey’s study demonstrated that “companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians, [and] companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians.” McKinsey concluded “… diversity is probably a competitive differentiator that shifts market share toward more diverse companies over time.”

However, although there is research showing the benefits to organisation performance when diversity is present on the board, there is also research that shows no relationship between board diversity and organisation performance.

It turns out that achieving the perfectly diverse group of individuals is not the path to improved organisation performance. The critical component is what you do with these diverse individuals once they are all together in the room. It’s about how the board’s culture enables the most value to be extracted from the individuals’ diversity attributes.  

“… diversity doesn’t guarantee a better performing board and firm; rather, the culture of the board is what can affect how well diverse boards perform their duties and oversee their firms.” Harvard Business Review

What this means for boards

There remains a compelling reason for diversity, particularly diversity that sits alongside effective processes, practices, and behaviours – that together form the culture – to capitalise on the inherent value of diversity.

“To make diverse boards more effective, boards need to have a more egalitarian culture — one that elevates different voices, integrates contrasting insights, and welcomes conversations about diversity.” Harvard Business Review

For boards to build and leverage diversity, these two streams of focus – board diversity and diversity utilisation – must be considered together. It moves diversity from a box-ticking exercise to an investable strategic activity that will create tangible outcomes for the organisation.  

Each time a board position becomes available, it’s an opportunity to build diversity in the way that the board has identified as enhancing the value of the overall team.

Boards can benefit from having the composition conversation regularly, not just when a position is becoming vacant. A comprehensive, up-to-date skills matrix (or board composition matrix) – that includes diversity attributes beyond traditional hard skills – helps to focus discussion and reach agreement on the aspects of diversity important to the organisation. It brings diversity to the forefront of attention and makes it a key focus of the board recruitment process. This helps to translate good intentions into actual outcomes.

Explore the strategic advantages of embracing diversity in our white paper

Where do you start?

Many board members I speak to agree that a good place to start thinking about board composition is as a reflection of the key stakeholders and/or customers that the organisation currently serves or wishes to serve in the future. Often this is not just a ‘men’ or ‘women’ demographic.

For example, if your business has a strategic goal of expanding into China, you may want to consider having someone from China or someone who has a deep and rich understanding of the Chinese culture on your board.

Other areas to consider are soft skills and interpersonal attributes, specific diversity attributes that will enhance board outcomes, meet future board and organisation needs, and enable compliance with the corporate constitution. You can find out more about these in the article on setting up, using, and leveraging a board skills matrix.

At the same time that you’re looking outwards, take some time as a board to look inward, reflecting on your culture and how it may best support more or different diversity. Is it ready to bring in and listen to different voices? Would someone with a very different demographic profile to the existing board members be able to contribute at their highest level on the board? What changes may need to be made so that diversity can truly happen and be leveraged in our boardroom? These may be difficult questions to answer without the diverse voices in the room to answer them (we don’t know what we don’t know), so perhaps it is a willingness to listen and change is critical at this stage.

During your board’s self-reflection, consider the current board recruitment practices; it may be time for an upgrade to ensure diverse candidates are seeing and getting into your pipeline. Having proactive recruitment policies, utilising creative recruitment and search strategies, and thorough induction programs enables the organisation to access a deeper, more diverse talent pool.

In reality, increased board diversity is a demand issue more than a supply issue. Boards must take actions to be willing and able to appoint (or present for election) diverse candidates that are already in oversupply in the marketplace.

Further actions your board can take

1. Review your board structures and governing documents to see where they may be holding you back from building a diverse board.

• Constitution: Do board members have maximum terms? Are your nominating candidate requirements overly prescriptive? Does the board have the ability to appoint people to the board?
• Shareholder / Investor / Donor contracts: Are your investors filling seats unnecessarily? Does the organisation require investors to meet diversity criteria?
• With your self-established candidate criteria, are they reasonable? Does the criteria create a threshold that is unnecessarily too high for most people to meet? Have you differentiated between what is teachable and what isn’t? And what is mandatory and what is optional?

2. Each time a board member sees a board-readiness program targeted at a diverse cohort, bring that conversation into the boardroom.

Ask what you could do to integrate that diversity into your board. At the same time, be aware of your ignorance and consider talking to someone FROM that diverse cohort to truly understand what they see as barriers to getting on boards. What actions and ideas can you integrate into your board and board recruitment practices?

Consider adopting a board observer program and/or using board committees as testing grounds for future board candidates to take meaningful action towards greater diversity. Broaden your board candidate pool by reaching out to representative organisations that align with your diversity goals. They can help you tap into a new and different group of aspiring board members.

3. Find ways to bring diverse voices into your boardroom.

It’s an uncomfortable fact that specific candidate attributes – diversity being one of those – will only be bought onto the board if it is seen as valuable for the board and organisation (in fact, this is true for all board member attributes). There must be a return on the investment. Not everyone can be on the board, and you don’t want to build a diverse board just to tick boxes, virtue signal, and not have meaning and purpose behind it that can be positively leveraged. That is insulting and demeaning.

This means that other mechanisms can be used to bring a wider array of diverse voices into the boardroom: committees, advisory councils, board advisors, focus groups, and engaging representative organisations are all ways to bring diverse perspectives into the boardroom and prime potential future board candidates. Truly unlock the value of diversity by asking better questions, sharing information (being vulnerable), and see the relationship as long-term or ongoing. Seek input into board recruitment, structures, governing documents, and how the relationships can be truly meaningful and valuable for everyone.

 4. Accept your ignorance.

We have to be aware of our unawareness. Be open to questioning the way we/you do everything and be willing to bring in different perspectives on issues. This is a valuable board skill to develop, not just as it relates to board diversity.  

Achieving board diversity is not an endgame. Establishing the best board is an ever-evolving process where the right composition must be set and achieved again and again as business and broader economic challenges are faced and addressed. With some intentional effort, every board has the opportunity to build a valuable, productive, and effective team. 

For resources on board diversity, visit:

Institute of Directors NZ Board Diversity

Watermark Search International – 2023 Board Diversity Index 

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