On Tuesday, the California State Teachers’ Retirement System (CalSTRS), the second-largest pension fund in the United States, wrote to Facebook to address the fact that the company has an unusually small, insular board with no women. With this bold and public step, CalSTRS brought to the fore an issue of genuine concern: diversity in the boardroom.
Most of the press will pick up the part about the absence of women board members, and that is vital — there is no doubt that women are severely underrepresented in the boardroom. The lack of women on boards, however, is a reflection of a wider problem with diversity: It is one of color, age, international perspective and more. The Facebook boardroom has virtually no variety, and that is a serious issue. Boards that don’t represent the stakeholders of the business and the environment in which companies operate are not able to do their jobs as capably.
A lack of diversity is not simply a problem of “optics.” In the modern world, it does look odd not to have it, but does diversity make a difference in real economic terms? Does it actually affect the bottom line? To my mind the answer is a resounding yes. We do not need diversity for diversity’s sake, but because diversity on the board contributes to the profitability of the business. Diversity of thought, experience, knowledge, understanding, perspective and age means that a board is more capable of seeing and understanding risks and coming up with robust solutions to address them. Businesses led by diverse boards that reflect the whole breadth of their stakeholders and their business environment will be more successful businesses. They are more in touch with their customers’ demands, their investors’ expectations, their staffs’ concerns, and they have a forum in the boardroom where these different perspectives come together and successful business strategies can be devised.
Some fear that too much diversity and independence of thought can be damaging to the cohesion of the board. Given the iron grip that Chairman and CEO Mark Zuckerberg has on the Facebook board, that may be a concern that is driving him. Yet for healthy boards with capable independent chairs, the very opposite is true. The modern board requires that there be room for open, constructive, dynamic discussion, with respect and regard for the people around the table. In my experience, the result is a more capable and better functioning board, one that can withstand the challenges of an ever-shifting landscape in which the organization it serves operates. Diversity then becomes part of the very DNA that marks a business as healthy and ready to face the future.
Healthy businesses need comprehensive diversity. Without it there is no independence of thought or action, and no way to hear what is happening outside of what would otherwise be an echo chamber. Also, diversity is not a static, one-time result that boards need to achieve, but one that poses a constant challenge of renewal. Good corporate governance in this sense also requires “turnover” in the boardroom so that organizations are capable of dealing with today and tomorrow.