Businesses have decided to improve the diversity of their boards, but the needle is moving slowly. In 2021, 30% of board directors were women and 21% were from underrepresented racial and ethnic groups. Today, those numbers for the S&P 500 are 32% and 22%, respectively. Still, more than three quarters of boards (76%) do not include a woman of color. Given the glacial pace of change, board members, executives and investors are asking, is diversity still a top priority?
Being intentional about diversity is the right thing to do, and it is also important for business innovation and growth. Accenture research found that the most diverse workplaces have an innovation mindset that is 11 times greater than the least diverse companies. Research also shows that companies with at least one woman on the board raised an average of 16% more funding ($302 million) than companies without any women on the board ($261 million).
In a recent study of CEOs, 31% said they want to increase the diversity of their company’s board of directors. Leaders want to see change, as do company stakeholders. When the board takes an active role in leading diversity, equity and inclusion efforts, progress can happen now, and it can position the board—and the company—to succeed in a future fraught with change.
Diversity is a fact
There are many facets of diversity—gender, race, ethnicity, age, sexual orientation, gender identity, and diversity of thought. Board diversity should go beyond C-suite titles to focus on the skills, work experience, culture, and perspectives that various individuals can bring to the table.
Right now, boards are homogeneous. Such a uniform composition does not reflect the diversity of the organization's workers nor the customers they serve. The average age of an S&P 500 board member is 63.1 and the average age of first-time board members is 54.4. Boards continue to be male-dominated. They are 78% white. Only 32% are female and <1% LGBTQ+ (when disclosed). With diversity being a “fact,” we are clearly not where we need to be.
Inclusion is an act
Inclusion starts at the top. The chair/lead independent director should lead by example. For diversity to benefit the board, all directors’ voices must be heard, valued, and included in discussions. The chair/lead will set the tone in the boardroom by being a good listener and asking to hear from directors who have not spoken or truly been heard.
The chair/lead also oversees the board’s succession planning, onboarding, and evaluation processes. This includes communicating that new board members are being added to enhance the current company strategy, and that the board seat is not an appointment for life. It is the chair/lead’s role to review and question the effectiveness of each board member and to communicate when a change is needed.
Equity is the goal
Board refreshment is key. Boards are small—the average size is 10.8 members and turnover rates are low, only 7% or 395 new independent directors in the S&P 500 in 2022. With the limited number of board member positions, every seat is critically important. Adding a woman here or a person of color there will not move the needle toward equity.
Refreshment varies by company, and many companies do not have documented policies. Term limits range from 10 to 20 years, and only 7% of boards use them. Age limits are more frequently used with 70% of S&P 500 boards having a mandatory retirement age, and 53% at 75 years or older. Many European countries set term limits on the number of years a director remains independent, which requires refreshing the board to meet the independence requirements and add new thinking.
Businesses have made steps toward diversity, however there is still work to be done. Consider these three questions to ask about your board’s diversity:
Do we have the skills and capabilities to support our strategy?
Your business strategy requires a variety of talents and skillsets. Review your strategy and agree, as a board, what skills and capabilities are needed on the board. For instance, a pharmaceutical company looking to bring products to market faster may want directors with CPG, marketing, sustainability, and regulatory experience. Furthermore, having diverse perspectives that come from a variety of professional backgrounds and experiences allows the board to borrow inspiration from other industries. Finding board members with the right expertise and skills to support the strategy is critical to moving the strategy forward.
Are the right voices at the table—and are they being heard?
Diversity includes diversity of thought, opinion, and voices. The board should embrace and celebrate these voices by listening to everyone at the table. The chair/lead plays a critical role in hearing every voice. Listening builds trust. Trust is vital for a board to effectively challenge one another, ask difficult questions, and have robust discussions. This will add texture to conversations about business challenges and future opportunities and create an inclusive board culture.
How can we better measure the composition and effectiveness of our board?
The board is a critical asset to the CEO and the entire organization. Remember, a diverse board is not there to meet quotas. Board evaluations and assessments can be an essential tool to improve overall board performance, benchmark against leading practices, and support board refreshment. To enhance the composition portion of the evaluation, data can tell a robust story about diversity. Start by documenting the demographics, skills, expertise, and background of your board. What is lacking? Good succession planning begins long before there is a need.
Debra McCormack is the global board effectiveness and sustainability lead at Accenture. Accenture is a partner of Fortune's Most Powerful Women Summit.
