Building Better Corporate Boards: The 2023 Report Card

“At the midpoint to 2030, the SDGs are in peril,” according to SDG Stocktake, produced by the United Nations Global Compact and 埃森哲 . There have been, however, fundamental changes in the composition of corporate boards. Board composition matters. Companies have the capacity and self-interest to accelerate progress in addressing climate change and social and economic concerns, the vital goals of the U.N. SDGs. Company boards of directors, however, have the ultimate responsibility and authority to guide and shape the enterprise. In order to maximize the company’s greater potential in the global marketplace, boards must drive the agenda for an inclusive, sustainable, and prosperous future. ?

Boards are becoming more transparent and diverse, which is a promising trend for the company and global advancement. More purposeful about engaging people with the diversity of backgrounds, experience, and expertise to grow the company’s value and improve society. And investors and regulators are becoming instrumental in driving much of this progress.

Companies can accelerate global progress

Defeating poverty, mitigating the pace of climate change and the destruction of the natural environment, and advancing education, health, and human rights are ambitious goals. National governments do not have global authority and resources to offer sufficient solutions, nor has the international community achieved binding and actionable agreements to address global problems. NGOs are often effective in addressing problems, but their capacity to achieve scope and scale is limited. As shown in both editions of A Better World, Inc. (2014 and 2023), only multinational corporations have the vast resources, global footprint, and market incentives to find innovative solutions to the world’s greatest challenges. Furthermore, businesses that are leading the way are demonstrating that innovative solutions to social, economic, and environmental challenges can be profitable.

Promoting inclusion and sustainability is the path forward for companies to build a more prosperous world that grows their own profits as well. Inclusion, because large ?segments of humanity are left out of the current economic system – BIPOC individuals, women, migrants and asylum seekers, LGBTQ+ individuals, and people with disabilities, among others. By squandering human capital, companies and society are pushing a multitude of people out of the equation – people who could contribute to and participate in vibrant economies. Sustainability is essential, because there is no future for people or planet unless greenhouse gas emissions are halved by 2030, and dropped to net-zero by 2050.

Three critical factors are necessary for companies to be successful. First, ensuring effective board governance that focuses on inclusion and sustainability. Second, engaging with stakeholders, including employees, customers, investors, and communities, in an iterative conversation on global problem-solving. Third, collaborating with NGOs, and governments to drive toward an inclusive, sustainable, and prosperous future.

Boards have the power to lead change

To fulfill their responsibilities to shareholders and stakeholders, boards must be comprised of qualified individuals. Given the challenges and opportunities facing businesses today, an effective board must be constituted with people who have the diversity of experience, expertise, and backgrounds to envision the company’s greater potential and to attain the leadership and culture to maximize success. Additionally, boards must focus on the social, economic, and environmental factors that are critical to grow value.

Boards are becoming better qualified to lead

Boards are better qualified today than ever before, and the trajectory is promising. Compare board composition in 2023 to board composition in 2014. (Spencer Stuart 2023, Spencer Stuart 2014)

Even though the very topics addressed in the new edition of A Better World, Inc. (2023) were already of grave importance in 2014, board members often came from homogeneous and privileged backgrounds, with little diversity in terms of gender, age, race, and ethnicity. Most rose to leadership positions in the late twentieth century, when climate change, cybersecurity, geopolitical conflicts, and other pressing issues were not on the agenda.

In the past decade, however, companies have become more intentional about building highly qualified boards comprised of directors from more diverse backgrounds. New directors added to boards in 2023 are different.

• 46% are women, compared to 30% in 2014.
• 36% are from diverse racial and ethnic backgrounds, compared to 12% in 2014.
• 18% are from outside the U.S., compared to 12% in 2014.
• 11% are under the age of 50, a data point that is not reported as a board characteristic in 2014.?

Importantly, boards are adding new directors who are under 50 years of age. “Younger directors may not only enhance a board’s generational diversity, but can help companies chart a path forward in an increasingly complex and technology-dependent business environment,” says MSCI Inc., which provides ESG and climate products.

Directors interviewed for the new edition of A Better World, Inc. (2023) point out priority areas of expertise for which people are being sought. April Miller Boise stresses that “in addition to traditional CEO and CFO experience that boards often seek out, more and more when recruiting directors, boards are looking for critical skills in areas like ESG, technology, digital, and cybersecurity." Boise is a Director at Trane Technologies , and Executive Vice President and Chief Legal Counsel at 英特尔 .

With regard to board competencies, Michael Cherkasky describes cybersecurity and supply chain challenges facing companies and their boards. "Boards are always focused on financial risks. Today, they must also look at operational risks; these are compliance issues." Cherkasky is Co-Founder and a Director of Exiger , a company that provides end-to-end supply chain visibility, and risk management and compliance solutions.

Furthermore, a sophisticated understanding of technology threats and opportunities is essential. “We’re about to go through another tech evolution like in the 1990s and early 2000s, through a combination of blockchain tech and artificial intelligence,” explains JoAnn Holmes, Esq. , Digital Assets and Intellectual Property Attorney, Web3 Advisor, and Outside General Counsel. “There are important implications for boards. These technologies are going to be disruptive.”

More turnover, driven by term limits and retirement age requirements, provides opportunities to further refresh board composition and ensure board independence. Boise advises that “there is often a concern by institutional investors that when directors are on boards for too many years, they can become less independent of management. Independence from management is important to evaluate enterprise risk and provide oversight.”

Although overall board composition is changing, there is room for growth in the leadership ranks on boards and in C-suite positions. Too few board chairs and company CEOs are women or people from diverse racial and ethnic backgrounds. Among the S&P 500 companies,

• 90 women serve as independent board chairs, and 75 as leading/presiding board chairs. More promising is that 195 women serve as nominating/governance committee chairs. Only 23 women serve as CEOs of S&P 500 companies.
• Members of underrepresented racial groups number only 40 independent board chairs, 60 leading/presiding board chairs, and 90 nominating/governance committee chairs. Only six people of color serve as CEOs of Fortune 500 companies.

Board diversity, equity, and inclusion is essential

This is a critical time for boards to become more diverse. Companies must consider the new expectations of investors and regulators in building boards and elevating leaders who are qualified to guide and shape the enterprise in this dynamic and challenging environment. With a broader set of experiences, directors will be better equipped to imagine and advance the company’s and society’s greater potential in the global marketplace.

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See also The Value of NGO Board Service for Business Executives, Nonprofits, and Communities.

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