Alice Korngold writes about the importance of board diversity.
“By increasing diversity among their board members, companies can unleash their greater potential to grow their value by finding innovative solutions to worldwide challenges. This will be good for business and good for the world.”
In the next two decades, the greatest opportunities for businesses to profit are in emerging markets, where three billion people will enter the middle class. Women also represent an important growing market worldwide, as they will control close to 75 percent of discretionary spending in the next five years.Unfortunately for shareholders, the vast majority of directors of the largest publicly held companies are still quite homogeneous. S&P500 board members are 80 percent men, with an average age of 63, older in fact than the average age of 10 years ago. (At 63, board members grew up when school materials were mimeographed; most were first exposed to the Internet at the age of 40.) Furthermore, in spite of extraordinary opportunities in emerging markets, directors of non-U.S. origin account for only 8 percent of directors on the boards of the top 200 S&P 500 companies, fewer than one per board; they are primarily from the U.K., India, Canada, France and Germany—only one of which is an emerging market country. Among the top 200 S&P 500 companies, minorities account for only 15 percent of all directors—fewer than two per board; the percentage of companies with at least one minority director dropped from 90 percent in 2005 to 86 percent in 2015. Women account for 20 percent of the total number of directors, with the average number of women per board at 2.16 (Spencer Stuart 2015). Among MSCI World companies, women hold 17.3 percent of board seats (MSCI 2014).
Imagine instead a board comprised of 10.8 people, the average board size, where directors of a variety of ages bring the necessary and relevant expertise and leadership experience, having grown up in various regions of the world, in a variety of socio-economic conditions. Such a group, some with academic credentials or particular subject mastery, others having built and led innovative ventures, climbed the ranks of multinational corporations in various parts of the world, had life experiences in emerging markets, or played and worked with the latest technologies from childhood, can truly envision what’s possible and also know what questions to ask management.