This year’s edition of a key governance document for corporate boards recommends, for the first time, that diversity be made a priority to bring new perspectives and backgrounds to the boardroom.
The latest edition of the Business Roundtable’s Principles of Corporate Governance makes one particular principle much more fundamental than it was in the previous edition of the guide.
That principle is diversity, a hot topic in the association world. In a key section of the report, the Roundtable emphasizes that a board should encompass in its members a variety of diverse backgrounds and experiences.
“The composition of a board should reflect a diversity of thought, backgrounds, skills, experiences, and expertise and a range of tenures that are appropriate given the company’s current and anticipated circumstances and that, collectively, enable the board to perform its oversight function effectively,” the report stated.
John Hayes, head of Ball Corporation and chair of the Business Roundtable’s corporate governance committee, in a post on Medium, tied increasing diversity to better business results.
“The diversity of thought and perspective within our society accounts for much of its resilience and strength — and it adds to the abundance of good decision-making,” Hayes wrote. “Differing perspectives and maintaining respect for the individual enable Americans, as well as American corporations, to prosper.”
Although research shows that organizations have made progress diversifying their boards, board demographics generally still lag behind the makeup of the overall population. Earlier this year, research from the executive firm Heidrick & Struggles found that Hispanics made up just 4 percent of all new board directors added to Fortune 500 companies last year, while that group constitutes 17 percent of the population. Women, meanwhile, made up less than 30 percent of all new board members.
Michael W. Peregine, a partner at the law firm McDermott Will & Emery, praised the Business Roundtable’s expanded emphasis in an op-ed for the New York Times‘ Dealbook blog:
By correlating diverse boards with greater board effectiveness and the promotion of long-term value creation, the association’s recommendation transcends public policy debates and moral imperatives. It is the most prominent acknowledgment of diversity as a governance principle, and a standard that nominating committees are advised to adopt. It does not retreat from principles of competency-based governance as much as it recasts concepts of competency in a more inclusive manner—one that attributes new value to skills, experience, and expertise that is reflective of the broader range of society. And its merits are as applicable to private companies and large nonprofit organizations as they are to public companies.
The full Principles of Corporate Governance report is available on the Business Roundtable website.