A more diverse board, aside from meeting key social goals, creates a host of benefits to companies, from a better representation of key stakeholder groups to improved financial returns. In a new study from McKinsey & Company, the consultancy firm explores what the top 25 performers in terms of board representation have done to boost their performance.
Board diversity remains a thorny issue for companies. Competing interests, implicit biases, tradition and lack of available candidates, continues to confound efforts to improve the situation for women and people of more diverse backgrounds more widely.
In a new article from McKinsey & Company, titled ‘How to Accelerate Gender Diversity on Boards’ the strategy consultancy firm explores what 25 of the top performers, listed on the S&P 500, are doing right when it comes to improving the lot of women to their boards.
The benefits of a more diverse board are multifaceted. McKinsey notes a number of key benefits, including a reduction in structural inequality by increasing the number of role models at the top of business, better representing customer bases, and improving the decision quality of boards through a more diverse cognitive background – reducing group think barriers. Research from Grant Thornton also shows that financial returns from improved female diversity for the S&P 500 could add up to $567 billion to companies’ revenues.
According to the firm’s analysis of the wider US, women currently hold around 19% of board positions, compared to more than 30% in European countries such as France, Norway, and Sweden – where there are clear legislative targets.
The consultancy firm also sought to identify in how far the S&P 500 top performers in terms of board diversity have fared since 2005. The analysis shows that, as it stands, women occupy more than 33% of board seats among the top 50 companies – considerably outperforming the average.
For the top three performers, Accenture, Alaska Airlines and Alliant Energy, in the top 25, the number of women on boards in 2016 surpassed 50%, while across all boards in the top 25 female representation was up 24 percentage points since 2005.
To better understand what the top 25 companies are doing right when it comes to boosting their level of female board representation, the consultancy firm ran interviews with CEOs and board chairs from a number of the companies, as well as some European businesses that have made similar progress. The research, which focused on identifying best practices, challenges faced and benefits from changes, found that top performers paid particular attention to three key areas: changing their mind-set, expanding their criteria, and maintaining an active pipeline.
One of the key moves towards increased diversity is executive leadership uptake – in terms of purpose and intention – as well as urgency in transforming wider business practices to focus strategically on increased inclusion. Steps taken including setting targets for the number of women on boards, as well as ensuring candidate lists are inherently more diverse.
In addition, successful firms in the area of board diversity, opened up to a broader pool of potential candidates – taking risks with the introduction of non-C-suite candidates, as well as not limiting executive searches to candidates with prior board experience – by, for instance, tapping expertise from non-business sectors, such as academia, law, and civil society. Key is to set non-negotiable criteria around necessary skills, and then expanding softer criteria to encompass more women, or diverse, candidates.
One of the most important tools noted by the consulting firm is an improvement to the number of diverse professionals in the pipeline. This may mean improving the wider promotion pipeline through policies that positively affect the retention of people of diverse backgrounds, changing policies related to promotion and hiring as well as creating leadership programme focused on different groups with diverse backgrounds. When looking for outside board members, cultivating potential candidates over a number of years may be key if the candidate is not immediately available, as well as focusing more on sending out feelers for potential candidates that bear fruit in future years.