How to diversify your Board

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Female participation increased 229% in 5 years on the boards of the largest publicly traded companies in Brazil. In 2016, women were 6.9% of the total number of seats on the boards, which rose to 11.4% two years ago (2019) and is now 16.1% (2021). This is what a survey conducted in June this year by the global financial data platform Comdinheiro and Valor Invest.

Considering the 81 companies that make up the Ibovespa index, the main index of the Brazilian stock market, in all, there are 115 women among 713 directors in total (16.1%). In the US, an analysis conducted in 2020 showcased that of the 3,000 (largest) publicly traded only had 21% women directors (up from 13% in 2015), and 12.5% of the board of directors were from ethnic and racial groups against 10% in 2015.

Although we should celebrate the development, the numbers are far lower than they should be by now. From the very top to bottom, the lack of diversity will be the Achilles' heel of most companies in the next years.

Why has there been an obstruction or thwarted effort to increase board diversity? It all depends on whom you ask this question. The latest 2020 edition of the Annual Corporate Directors Survey revealed that many male directors believed that the underrepresented groups weren’t qualified enough. Some felt that a change wasn’t necessary, i.e., including board diversity. In comparison to their male counterparts, female directors felt a lack of prioritization from the board and executive leadership for the simple fact that diversity expansion has been incomplete.

The data present that most directors are fascinated by diversity only in theory, which cannot lead to real change. Based on research, the four most frequently cited whys and wherefores of how and why boards lack diversity and how directors can overcome these natural and abstract obstacles.?

# 1 - New seats available

A low turnover rate is one of the biggest obstacles to increased board diversity. Last year a report presented no changes to the board of directors in more than half of America’s largest publicly traded companies.?

There is an easy solution to overcome in the short term: companies should add a new board member every year without waiting for a director to retire or reach their end of the period. They should keep this seat as either permanent or temporary, which would help strike a balance of the required number of directors for a company. This is the easiest way to start bringing in a change in a gradual manner.

A long-term solution for boards is to find the right rhythm for change following the pace of transformation of the market. Having directors for longer tenures is valuable as they bring in a fresh outlook along with experience. Here it is essential to strike a balance between bringing in new voices and respect for expertise.

# 2 - Make diversity mandatory

Theoretically, diversity is being promoted with a disparity amongst the board members wherein only 34% of board members felt that racial/ethnic diversity was critical, and 47% fully supported gender diversity. Research also proves that many organizations show that most inactivity has left variety in the set of ‘good to have a category.

This can be set right with the motivation to push past idleness and bring in real change. Influential investors have been assertive, asking companies to vote against nomination committee members for boards if they have not supported the progress on diversity.??

Shareholders should ensure that board diversity is made compulsory and mandate and should not be treated as optional. The boards should also accept and know that there would be essential consequences if they ignore their shareholders and make board diversity a consistent practice.

# 3 - Professional headhunting will help you find the right candidate

The third most significant problem is a huge misconception that there is a shortage of qualified candidates, and this has limited the progress to diversify the board of directors. There are many candidates from the underrepresented groups who are active, and many organizations maintain healthy relationships. So, the initial step is to believe and reach out to all capable candidates, and for this, the boards should put a relentless effort to bring them on board. This acknowledgment and practice would be a first step to bring in board diversity, leading to effective and strategical recruitment.?

There is also a theory that new directors must be retired executives, which has different perspectives. Retirees do bring invaluable experience from the past, but active executives get in rapidly evolving situations. The culmination of these two would bring in an amalgamation of previous experience and the latest trends. The covid-19 pandemic has proved how active executives added value and helped the retired executives to adopt and adapt and respond to other companies and industries. Also, many boards decided to adopt permanently virtual meetings which makes easier to have great people from all over the world.

# 4 – Partner with diversity groups

There are many groups in Brazil and worldwide that gather great women directors. One fine example is The WomenCorporateDirectors (WCD) Foundation, a nonprofit organization that promotes diversity on boards of directors. Founded in the United States in 2001 and now present in 39 countries with 79 chapters, the foundation connects the largest global community of women directors - more than 2,400 - serving on boards of some 8,500 public and private companies worldwide. Through events, networking, and tools for education and dissemination of best practices in corporate governance, WCD fosters highly qualified board candidates. In Brazil, WCD , led by Leila Loria , Mayra Stachuck and Marienne Coutinho , has been present since 2009 with chapters in S?o Paulo and Rio de Janeiro, bringing together more than 260 members, 85% of whom already serve on boards. 85% already serve on boards and/or committees, and the remaining C-Level executives are ready to assume the position.

# 5 - Succession Planning ASAP

One of the solutions to deal with the above is for the board leadership to have a succession plan in place, and this plan needs to be formalized and shared with all. The directors should have all the projects to refer to, and these plans should reflect the changing priorities and requirements. A clear vision to the board of directors on governance and goals would ensure that all board members are in sync. This would provide a smooth transition for making changes, appointing new board members with diversity, etc., amongst all the board members. All the plans and policies should clarify how to source diverse members and raise a voice if diversity isn’t practical or overlooked.

The most significant advantage of sharing plans with all will make sure that all voices are heard, and everyone has an equal chance to share and give their input.?

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