Real Corporate Board Diversity Is More Than Just Hitting a Quota

How diverse is your board of directors? How is your board of directors diverse? And why does it matter?

The push to require diversity on corporate boards is moving forward, even as questions remain about the legality of some of the efforts. These are three important questions for general counsel to discuss with their CEOs, as regulators and investors continue to apply pressure to expand representation on boards.

Hawaii, for example, is considering a law that would require every company based in the state to have at least one woman or non-binary director and one man or non-binary director on its board by the end of this year. By late 2025, the mandate would expand to three women or non-binary members and three men or non-binary members.

Sign up for our In-House Counsel newsletter, showcasing the news general counsel needs from Bloomberg Law.

Meanwhile, a California law mandating corporate board seats for women and members of certain underrepresented communities is in limbo after being struck down in multiple court rulings. The Securities and Exchange Commission is also mired in litigation over similar rules for Nasdaq-listed companies.

There’s plenty of data demonstrating that diverse boards outperform homogeneous ones, yet progress on expanding opportunities has been slow.

No matter what happens in court, states will continue to explore creative ways to encourage board diversity.

Quotas can make a difference: The number of board seats held by women in California more than doubled since the state passed its 2018 law. But they are not a magic wand.

Rethinking ‘Best’

Boards of directors are self selecting bodies. It’s not surprising that small groups made up predominantly of white men who are former CEOs, CFOs, and venture capitalists tend to select colleagues who look a lot like they do.

We’re all biased, and predisposed to appreciate people whose life and professional experiences are similar to our own because we can easily identify with them. The “best qualified” candidate often is the one who’s a lot like we are because, of course, we’re the best board members. It’s the comfortable, safe choice.

Selecting a board member shouldn’t be about finding a mythical “best” candidate.

It’s a matter of understanding the power of diverse organizations and identifying the best candidate for that particular room, someone who brings new but highly relevant skills and perspectives. A room where everyone looks alike, has a similar educational background, and has common life experiences isn’t equipped to make the best decisions.

Women and racial minorities likely make up a significant percentage of most companies’ employee and customer base. Your board should reflect that.

Quota Quagmire

Quotas have their own challenges, in addition to raising legal questions.

They can inadvertently create the perception that women and non-white board members are “token” selections, not deserving of their new roles. There’s also the risk that companies will “check the box” once the targets are reached.

The truth is that diversity is more nuanced than a mere number. Gender and racial diversity alone do not guarantee a better performing company. Diversity of thought is also critical, and that is often best achieved by also looking at factors like age, skill set, and background.

General counsel need to talk with their CEOs, and board members, to discuss diversity in the context of their company’s mission and specific needs.

Think about your board culture. Are diverse board members working together as a team, encouraged to speak up and share their thoughts?

Challenge yourself to define where you have holes in “diversity of thought,” and consider how you create the right board culture to get the most out of the diverse talents that you’re bringing to the table.

Clinging to old thinking—where board roles are based on “who you know” and other outdated standards—may have consequences that extend beyond the law, threatening both your brand and business performance.

Rob Chesnut is the former general counsel and chief ethics officer at Airbnb. He spent more than a decade as a Justice Department prosecutor and later oversaw US legal operations at eBay. The author of “Intentional Integrity: How Smart Companies Can Lead an Ethical Revolution,” Rob consults on legal and ethical issues.