America’s boards of directors are only 27% women yet gender-diverse boards are 27% more likely to outperform financially*. e.l.f. Beauty wants to “Change The Board Game” with its latest initiative. While e.l.f. Beauty’s own board is a big step in the right direction with 2⁄3 women and 1⁄3 diverse representation; there are only 4 publicly traded companies with boards like that. That’s 4 out of 4,429 total companies.
Given that big businesses have so many different stakeholders as employees, customers, suppliers, investors and community members, it’s often an advantage for them to have boards who represent all those diverse perspectives. This article addresses key questions about who is on boards, why diversity matters in the boardroom and how real change can be implemented.
Who Can Serve On A Board?
Anyone with the right experience can serve on a board. Generally a board will include a few company executives, such as the Chief Executive Officer or the Chief Financial Officer. Other board members may include representatives of large shareholders of the company or other individuals with experience in a relevant industry or that have certain desired skills. Think C-Suite executives from other companies, seasoned professionals, founders, subject matter experts, etc.
Public companies that trade on the NYSE (like e.l.f. Beauty) or Nasdaq are required to a majority of the directors on the board be “independent”. That means those directors cannot have a material relationship with the company (such as being a large shareholder or an executive for a major supplier/customer), cannot be members of the company’s executive team, and cannot be involved in the day-to-day operations of the company. Independent directors help provide an unbiased view for the board and company management.
Why Does Diversity On Corporate Boards Matter?
In simple terms, the board makes important decisions for the company. The board assesses the overall direction and strategy of the company, approves material transactions (like acquisitions and major investments), approves capital allocations and dividends, establishes a governance program, and oversees the company’s risk management
The CEO and other C-suite executives (think: CFO, CMO) are responsible for the day-to-day operations of a company. They make thousands of decisions every day about how the company operates, what products it sells, how it treats employees, and many other things. The board gets to decide who wields that power—this is an important choice in determining a company’s future outcome, and outcomes it creates for its employees, customers, shareholders, the climate and society at large. Because the board sets the tone for a company’s mission and vision, and figures out what the company’s goals should be, who sits on the board and what experiences they represent is crucial.
What Are The Benefits Of Having A Diverse Board?
Having a board representing diverse backgrounds, perspectives and skill sets is good for business.
Recent data from the consulting firm McKinsey shows that Gender Diverse boards are 27% more likely to outperform financially, and 21% more likely to experience above average profitability. And, ethnically diverse boards are 13% more likely to outperform boards that aren’t diverse. However, the average U.S. corporate board is only 12% diverse and 88% white**. It is time to change the board game!
How Does A Diverse Board Of Directors Help Increase Organizational Performance?
At e.l.f. our diverse board brings in multiple viewpoints to make better decisions. A diverse board also helps us stay culturally relevant among multiple affinities. We’ve got an expert on social media and gaming, and we have proven beauty experts in products and formulas. It’s the unique combination and diverse school of thought that helps us lead innovation and brand demand in the industry.
What Can Be Done To Get More Diverse People Onto Boards?
To make change in the real world, people need to be voted onto boards. Directors are elected by the shareholders of a company, generally at the company’s annual shareholder meeting—in the case of vacancy, however, the board can appoint someone to fill that vacancy until the next shareholder vote. Term lengths for directors vary based on the company’s governing documents. Suggestions for candidates for a board come from many different sources—current directors, executives, director search firms, and shareholders.
So, to make change, the people who recruit board members and who serve on Nomination and Governance committees need to get introduced to new kinds of talent. That’s why e.l.f. is partnering with the National Association of Corporate Directors’ (NACD) Accelerate program to get 20 diverse, board-ready professionals plugged into the right people. It’s a unique, two-year program that creates a pathway for executives to prepare for board service.
America’s boards of directors are not diverse enough. But there is hope. More and more companies are starting to see first-hand how diversity can create profitability for everyone, and they are sharing their success stories more often. Real world success stories like these make a powerful case for change, which is why it’s more important than ever that companies and consumers alike continue to push for change.
*Source: McKinsey & Company, December 2023
** Source: 2023 BoardEx Non-Executive Director Database analysis of US publicly traded companies on NASDAQ + NYSE (N = 36,957)