Boards of directors at many U.S. public companies continue to be dominated by white men, and these companies are missing the opportunity to have a significant competitive advantage in the marketplace.
Only about 20 percent of board seats at Russell 3000 companies are held by women, according to several analyses, while about 10 percent of seats are held by members of ethnic minority groups.
Certainly, making a corporate board more diverse is the right thing to do. But what’s often lost in the conversation is how board members from different backgrounds can bring powerful, fresh ideas and perspectives to your company.
Quite simply, leaders need to get advice from board members with a wide range of backgrounds if their businesses are to be truly effective. And concentrating on just one type of diversity — racial or gender diversity, for example — is not enough. In a March 2019 Harvard Business Review article, researchers argued that social diversity (race/ethnicity, gender and age) and professional diversity should both be considered when increasing board diversity.
Diversifying a board the right way requires an intentional effort with a long-term focus.
The first step is to make board diversity a priority for your organization. The advocacy group 2020 Women on Boards recommends several strategies, including: ask senior executives about qualified candidates who might not fit the typical profile, ask industry association leaders about candidates who’ve been speakers at their conferences, and contact the Women Corporate Directors foundation to share your board opportunity with its network.
At HCI Group Inc., we decided two years ago to try a unique approach, creating what we call the Board Observer program.
Each year, we pick two businesspeople to observe our board meetings, participate in discussions, and learn what it takes to be an effective board member. Our goal was twofold: to build a group of potential candidates for our own board while preparing qualified people for board roles at other companies who’ve been overlooked for such positions in the past.
To our knowledge, HCI’s Board Observer program is the only one of its type in the country. While some companies have used board observers to provide specific technical expertise, we haven’t heard of any other companies running a program specifically designed to prepare board candidates for the future.
At the end of their terms, our first two Board Observers, accounting executive Loreen Spencer and technology executive Sue Watts, joined our board. We now have two new Board Observers, Lauren Valiente, a litigation lawyer, and Peter Politis, founder of a legal services firm. All four have provided valuable insights and perspectives that we wouldn’t have gotten if we were still selecting board members using the tired methods of the past.
Too often, after companies decide they want to diversify their board, they go through the same short list of candidates that everyone else looks at, so the same people get opportunities over and over again.
Companies usually look only at CEOs and CFOs for board seats, ignoring the fact that so many qualified executives never attain these positions. In 2018, 78 percent of new board director positions at the nation’s largest companies went to current or former CEOs and CFOs, according to the 2019 Board Monitor report from Heidrick & Struggles.
The experience of being a Board Observer has shown Loreen and Sue that being an effective board member may require learning a new business (we are a technology-heavy company with subsidiaries in insurance and commercial real estate), and requires a commitment to hard work along with the confidence to state your opinions.
We are always looking for more candidates for our Board Observer program – anyone interested can reach out to HCI Group at contactus@hcigroup.com. Though we don’t currently have openings on our board, we know we will in the future. Also, we want to prepare folks for possible board positions at other companies.
The payoff for a company that diversifies its board is a group of advisers that provides smart, impactful ideas. And this will make a difference in your business, I assure you.