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Economy Trumps Diversity for Board Recruitment

By Rebecca R. Hastings, SPHR  1/21/2009
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More than half of board directors (55 percent) at U.S. publicly traded companies do not want to see their boards become more diverse by increasing their minority representation, according to a recent survey. But it is the economy, rather than bias, that apparently is dictating board recruitment priorities.

The report, conducted by executive search firm Heidrick & Struggles International, Inc. and the Center for Effective Organizations (CEO) at the University of Southern California’s Marshall School of Business, found that availability of qualified candidates is a top obstacle to creating a diverse board.

The survey released on Dec. 15, 2008, and now in its 12th year, captured input from 78 board members at Fortune 1000 firms.

“Given that we are working in very different times, it is surprising that directors’ reactions to the issue of minority representation have not advanced from our study 12 years ago,” said Dr. Ed Lawler, CEO director and a distinguished professor of business at USC Marshall, in a news release. “We expected an increased appetite for minority representation.

“While there is little commitment to increasing representation on the board, many directors (82 percent) recognize that having a diverse board can be beneficial to the company because diversity contributes to a broader range of decision options for consideration,” Lawler added.

Ted Dysart, managing partner, Americas, for Heidrick & Struggles’ global board of directors practice, agrees that the results appear surprising at first glance, but he says the current business environment is to blame. “We are in unprecedented economic times,” Dysart told SHRM Online, and that’s why overall experience takes precedence. “They are feeling they want talent above all else.”

According to the 2008 Spencer Stuart Board Index, active CEOs and COOs top the “wish list” for new directors, though many also seek retired CEOs or COOs. Financial expertise tops the list of specific skills boards seek, followed by industry and international expertise.

Boards Slowly Becoming Diverse

According to the Heidrick & Struggles/USC report, most boards have at least one woman and nearly a quarter have a black board member. The vast majority of respondents have no Asians, Hispanics or foreign nationals. But Dysart says the numbers should not be perceived as an exercise in tokenism. After all, one person might represent 20 percent of the population of a small board, he says.

And a little bit of diversity goes a long way.

“From talking to women’s groups, I’ve been told that the tone changes dramatically when adding one person to the room and more when adding someone else to the room,” he adds. “What we’re talking about these days is how to increase percentages.” Dysart says.

“I’ve always been of the mindset that a board is a wonderful gift to a corporation and that it should be built around a series of perspectives that sit around that table.

“It should be diverse in terms of ethnicity, age and geography,” he says, meaning that local companies should seek candidates who live outside the community in which the company is based. “You need to make a spicy soup.”

CEOs Rule

Dysart says a company’s top priority is to seek candidates with the broadest strategic expertise. “It’s relatively easy to find people with narrow experience such as financial expertise; it’s much more challenging to find someone with functional expertise as well as the broader strategic expertise,” he says. “Those people are most often CEOs.

“Trying to get a sitting CEO to sit on a board right now is really frustrating,” he says, because most are focused solely on how to keep their own companies afloat. “Where we go dipping for talent is to heirs apparent, either to COOs or the two or three people who are clearly in the CEO succession pool.

“We are also looking for people who have had executive experiences and skill sets that might be outside traditional corporate environments, such as in government or academia,” he adds.

And that’s not a bad thing, as Dysart observes: “If you had the opportunity to build a board of sitting CEOs, it would probably be one of the most dysfunctional boards on the planet.”

That’s why it’s important to provide opportunities for development at the management level.

According to a survey commissioned by The Executive Leadership Council, 75 percent of the 150 corporate executives surveyed by Harris Interactive late in 2008 believe that having minorities in senior executive positions is particularly important to providing new ideas and innovation and to reflect the diversity of customers.

The poll was conducted immediately following the presidential election when there was substantial discussion of how the election of the first black president would impact opportunities for minorities seeking to move into the C-suite and on to corporate boards.

Dysart suggests that minorities and women seek out opportunities for general management—as opposed to functional—experience if they aspire to board positions.

Rebecca R. Hastings, SPHR, is an online editor/manager for SHRM.

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