Why Do Boards Have So Few Black Directors? by J

RACE Why Do Boards Have So Few Black Directors? by J. Yo-Jud Cheng , Boris Groysberg and Paul M. Healy

August 13, 2020

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Workplace diversity can bring out the best in teams by promoting creativity, encouraging greater consideration of alternatives, and providing access to a wider range of information and perspectives. The numerous benefits also extend to employee recruitment and retention. Despite the growing body of evidence of these advantages and the proliferation of company-sponsored diversity initiatives, the advancement of Black professionals up the corporate ladder has been painfully slow and may even be reversing.

/ The underrepresentation of Black professionals is especially bleak in the highest echelon of corporate America: boards of directors. Although newly-appointed directors are increasingly diverse, 37% of S&P 500 firms did not have any Black board members in 2019 and Black directors comprised just 4.1% of Russell 3000 board members that same year. In light of these persistent racial inequities, Reddit’s co-founder and executive chairman of the board, Alexis Ohanian, recently stepped down, stating: “I’ve resigned as a member of the Reddit board, [and] I have urged them to fill my seat with a Black candidate.” Reddit has since appointed its first Black board member: Y Combinator CEO Michael Seibel.

The deaths of George Floyd, Breonna Taylor, Ahmaud Arbery, Rayshard Brooks, and so many other Black Americans has brought the long history of systemic racism in the United States into sharp focus over the past several months. Pressure is mounting on corporate leaders to consider how their companies can address and rectify ongoing racial injustices. So what are the factors that perpetuate the continuing underrepresentation of Black professionals on boards? And what can be done to change the systems that reinforce these disparities?

To answer those questions, we draw upon a About the Research survey we previously conducted of over

This survey was conducted through a 1,000 U.S. board directors between 2015- partnership between Boris Groysberg 2016. We note that only 24 of our survey from Harvard Business School; Yo-Jud respondents identified as Black/African Cheng from the University of Virginia; American, reflecting our own shortcomings WomenCorporateDirectors Foundation, in engaging a diverse set of survey led by Susan Stautberg; Spencer Stuart, respondents as well as the state of board led by Julie Hembrock Daum; and diversity in the U.S. today. Our small sample independent researcher Deborah Bell. Survey responses were collected size necessitates that we be careful in between October 2015 and June 2016. interpreting our results. Nevertheless, we Data and figures in this article are based explore the experiences of these 24 Black on survey responses from 1,028 directors board members as a starting point in of companies headquartered in the uncovering and understanding the United States (24 Black/African institutional and social barriers that impede American, not of Hispanic descent; 29 / Asian/Pacific Islander; 24 Hispanic; 914 our progress toward increasing the white, not of Hispanic descent; 37 representation of Black directors on boards declined to report their (see the sidebar “About the Research” for an ethnicity).Director-level survey questions overview of our methodology). are analyzed based on the respondents’ self-reported race/ethnicity (e.g., Black/African American). Board-level The Barriers to and Within the Boardroom survey questions are analyzed based on the number of racial/ethnic minorities Director recruitment. One factor that (more granular data is not available). reinforces the racial status quo on boards is the way in which new directors are typically recruited. These systems are especially ingrained on boards that do not have any directors who are racial/ethnic minorities. When filling open board seats, these boards consider almost no candidates who are racial/ethnic minorities (0.2 candidates per open vacancy, on average), and fewer total candidates (2.9, on average). In contrast, boards with two or more directors who are racial/ethnic minorities consider an average of 1.0 racial/ethnic minority candidate and 3.9 candidates for each open board seat.

/ / One policy that companies have adopted to shift hiring practices is the Rooney rule, named after former Steelers owner Dan Rooney, who fought for a National Football League policy to require teams to interview racial/ethnic minority candidates for coaching jobs. For example, following investor pressure, Amazon committed to including women and minorities in all candidate slates for director openings in 2018. The company has since appointed two women of color to its board. However, studies indicate that these rules often do not go far enough. Finalist pools need to have more than one candidate from an underrepresented group to meaningfully influence hiring outcomes.

Gaining an introduction to the board. The small number of candidates considered for open board seats can make it a major challenge for aspiring directors to obtain their first board seat. Our survey highlighted some of the differences in how directors gain an initial introduction to the board. Over half of Black directors were known to a fellow board member prior to being appointed (as compared to 35% of white directors), and Black directors were somewhat more likely than white directors to have been recruited by an executive search firm, suggesting that these firms can assist boards in expanding the scope of new director searches. On the other hand, white directors were more likely to be a current or former executive of the company, suggesting that the internal pipeline to the board is dominated by white executives. (Interestingly, a similar proportion, approximately one third, of Black and white directors in our survey was already known to the CEO when they were initially introduced to the board.)

/ / These findings illustrate the heavy reliance on social networks in recruiting new directors, a point underscored by Carnival Corporation CEO and Bank of America director Arnold Donald in an interview with Black Enterprise: “In boards of directors, people tend to go to people that they’re familiar with [and] have grown to know and trust. Often, people don’t / have very diverse circles of people that have that level of trust and confidence.” Because corporate America is predominantly led by white men, this type of network-based recruiting can perpetuate long-standing racial inequities.

Director onboarding. For boards to benefit from the diversity of their members’ expertise and experiences and to open the floor for meaningful conversations and debate, boards need to redesign their processes to involve social onboarding and relationship building, which allow directors to get to know one another. In our research, 44% of directors on boards with no racial/ethnic minorities rated their new director training processes as effective, compared to 66% of directors on boards with two or more racial/ethnic minorities; 65% and 74% of directors, respectively, rated their new member integration processes as effective.

/ / Board leadership roles. Among survey respondents, we found that on average, Black directors joined their first board earlier than white directors (at 39.2 and 42.4 years old, respectively), their educational attainment was higher (79% and 71% held advanced degrees), and that both Black and white directors were concurrent members of 1.4 public boards and dedicated approximately the same number of hours to board service per year (142.8 and 145.1 hours per board).

Despite their qualifications and their investment of similar amounts of time to their boards, we found that Black directors in our survey were less likely to hold board leadership roles. Twenty-five percent of Black survey respondents served as a board chairman or lead director, compared to 37% of white survey respondents. Black directors in our sample were also less likely to be board committee chairs than white directors. White directors are therefore more likely to control leadership roles that manage the board pipeline, such as the chair of the nomination/governance committee.

/ / Board dynamics. Black professionals frequently find that their contributions are ignored and undermined — an issue that can be particularly acute for Black women. We found that this type of racial discrimination can permeate even the highest levels of the organizational hierarchy. Although most directors rated their boards’ dynamics highly with respect to having their voice heard, feeling in sync with other board members, and performing as a team, ratings were notably lower in one particular scenario: when a Black director was the only racial/ethnic minority on the board.

Promoting diversity cannot stop when a single black director is appointed to the board; continuous and conscious effort is needed to ensure people of color represent a meaningful segment of the board and to sustain an environment in which different perspectives are actively elicited.

/ / The Beneﬁts of Board Diversity Our research also affirmed that boards with members who represent racial or ethnic minorities function better in several ways:

Diversity of perspectives. Due to the incredible breadth of issues and stakeholders that boards of directors contend with, diversity in priorities and viewpoints is critical. Our survey illustrated some of the ways in which greater director diversity can introduce a broader range of perspectives into the boardroom. For example, when we asked directors about the top political issues relevant to them as a corporate director, the economy, regulatory environment, cybersecurity, and corporate tax rates were ranked as top issues relevant to all directors. However, among secondary issues, Black directors were more likely than white directors to rank equal rights for women, economic justice, and unemployment as top political issues, while white directors were more likely to cite national budget deficits, environmental sustainability, and energy costs as top issues.

Reflecting national trends in political party affiliation, Black directors who responded to our survey were more likely to identify as Democrats, while white directors were more likely to identify as Republicans (approximately one quarter of both Black and white directors identified as independents). These differences can shape board discussions and decisions and help boards navigate the complexities of today’s political environment.

/ / / A virtuous cycle. Increasing diversity on boards can pay dividends well into the future: More racially-diverse boards were rated as having a better mix of members and were also more likely to prioritize diversity within the company. We expect that these factors are mutually reinforcing: boards that are open to new ideas are more likely to appoint more racially-diverse directors, and more racially-diverse directors are likely to provide a greater mix of perspectives to the boardroom. In turn, representation at the board-level can promote greater diversity throughout the organization through direct action and in more passive ways. In the words of Marvin Ellison, CEO of Lowe’s Companies and director at FedEx, in an interview with the Executive Leadership Council: “It’s encouraging to see someone who looks like you being successful, and it creates a rising tide. It gives you confidence that you can get there too.”

/ What Boards Can Do

/ Directors and top executives play a critical role in setting the tone from the top. White men in particular can play a catalyzing role because they have greater freedom to deviate from the status quo to push for change without facing the negative repercussions that women and non-white men face when engaging in diversity-valuing behavior.

Here are steps that boards can take to enact changes in the firms they lead.

Assessment of director recruitment procedures. Careful self-reflection — followed by concrete change — on director recruitment procedures is urgently needed, especially in all-white boardrooms. Although these types of deep assessments can be uncomfortable, they are necessary.

To dismantle ingrained processes that contribute to the systemic underrepresentation of minority directors, ask:

How many candidates are typically evaluated for open board seats? How frequently are new directors brought on board? (In response: Can the board set a minimum number of candidates to interview for each opening? Is a formalized board refreshment policy, such as a mandatory retirement age, needed?) To what extent do directors rely on personal connections to identify director candidates? What is the demographic composition of directors’ professional and social networks? (What professional organizations, search firms, or connections can be consulted to access a more diverse pool of candidates?) What factors are used to rule candidates out? Is a desire for “cultural fit” within the board resulting in a racially-homogeneous board? (How can decision-making processes and criteria be established and formalized?) Is former CEO/CFO experience a necessary prerequisite for board membership? (What are the specific skills and capabilities that are needed by the board? What experiences and perspectives are not yet represented?) Is the board setting new directors up for success? (What processes and activities can be used to build relationships between new and existing directors?)

/ Accountability throughout the organizational hierarchy. Directors can play a role in promoting diversity at all levels. At the top, directors should actively ensure that a diverse slate of candidates is considered for the CEO role.

Further down in the company hierarchy, the board can hold leaders accountable for diversity in the talent pipeline. Debra Lee, former CEO of BET Networks and director at AT&T, Burberry, and Marriott International, shared the processes in place on the Marriott board in an interview with Black Enterprise: “The company has to report to me [the chair of the committee on excellence] every quarter on what the numbers look like. How many [people of color and women] have left, how many have been recruited, how many of them promoted.” Currently, the responsibility and burden of these initiatives often falls to people of color and women directors; these initiatives need to be championed by all directors.

To ensure that progress is made, some boards link executive compensation to diversity targets (policies are already in place at Microsoft and Uber), and referral bonuses can be offered to employees that refer underrepresented minorities to the workforce (Intel, for example, offers twice their usual bonus for referrals of minorities, women, and veterans).

Mentoring and sponsorship. Existing board directors can enact change through formal mentoring and sponsorship, which can provide valuable connections for underrepresented minorities. Peggy Alford, EVP of Global Sales at PayPal and director at Facebook, explained how directors can pay it forward in an interview with Black Enterprise: “After you serve on a board, more companies learn about you and demonstrate an interest in talking to you about available opportunities that you may not have the capacity to consider, which creates an opportunity to recommend other equally qualified candidates.” Mentoring can also chip away at mentors’ own biases. Once again, it’s important for all directors — not just people of color — to engage in these activities.

Employees are looking to their company’s board to take meaningful actions against racism. Sustained effort and action are critical in building a board and company environment where all directors and employees can effectively contribute and thrive. Without the

/ ongoing awareness and effort, no team or organization can foster a culture in which members of underrepresented groups know they belong.

J. Yo-Jud Cheng is an Assistant Professor of Business Administration in the Strategy, Ethics and Entrepreneurship area at Darden.

Boris Groysberg is the Richard P. Chapman Professor of Business Administration at Harvard Business School, Faculty Affiliate at the HBS Gender Initiative, and the coauthor, with Michael Slind, of Talk, Inc. (Harvard Business Review Press, 2012). Twitter: @bgroysberg.

Paul M. Healy is the James R. Williston Professor of Business Administration and the senior associate dean for faculty development at Harvard Business School.

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