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How to Build a Diverse-Thinking Board
Kellye Whitney, 07-20-2010
When the subject of board composition rears its quasi-controversial head, most diversity executives will readily admit they spend a good chunk of their time attempting to identify candidates with crossover appeal. Practitioners may want to focus more on expanding diversity of thought, however.
“The opportunity to have a better board is something business has been working on particularly the last three to five years. We’ve seen a little bit of progress, but there’s a lot more to be made,” said David Niles, president of SSA & Co., an operations consulting firm. “That revolves around making sure you’re using the board to get insightful external information to govern the business better.
Niles said it’s important to be disciplined in the director selection process because constructing boards today is different than it has been in the past. Board directors traditionally focused on risk management and governance based on ‘a legacy of fate and a history of relationships.’ This created a disconnect between the board’s established directives, its composition and the processes that guided its operations.
To ensure board composition will inspire the business, directors should have a high level of interest as well as a distinctive perspective the company is looking to add.
“If you have a consumer products business, you’re certainly going to want to have folks on the board who have consumer products expertise,” Niles said. “But you don’t want everybody to have consumer products expertise. You want people to have supply chain expertise, financial expertise, manufacturing expertise depending on the nature of your operations.
“You want to make sure you’ve got folks with a truly diverse understanding of the world. Then use that diverse understanding to help you manage your business better, and provide that kind of insight as you’re trying to manage your own customer, supply chain and employee relationships.”
Niles said the private equity sector may have some lessons to offer with regard to managing board composition, and how information is actively shared between management and the board.
“Board members are to be active advisors to a business and not just risk mitigaters and governance experts,” he explained. “In practice, communication between the board and the CEO, and the board and the layers below the CEO, is often much more regular in a private equity firm. In a Fortune 500 company, how often does the board get together? How often does the CEO talk to his directors? Think about it a layer deeper – how often does the head of HR, the head of marketing, the CFO get exposure to the board and vice versa? The answer is not very often. Often that happens in a formal session of the board. In a private equity setting, that communication is often on a weekly basis.”
The board should be representative of a diverse population from a race and gender perspective, but diversity of thought, experience and process are equally important to make the most of a board of directors as a business asset.
“Today, the world needs directors who are hands on not just in terms of financial regulations and governance, but understand where the market is going, where customers are going,” Niles said. “Home Depot famously used to have their directors spend one day a year in a Home Depot store, and it was a really helpful tool to provide perspective into the company. That’s an anecdote from four or five years ago. There are not a lot of boards today where you hear about that kind of active participation in the business.
“You want to have a diversity of experiences and a diversity of backgrounds in the board, but set up protocols and procedures to make sure you’re taking advantage of that. It’s great to have a meeting where’s there’s some different looking people sitting around the table, but let’s make sure we’re actually getting everything we can get, that we’re [generating] new perspectives about our markets and our business.”
