Examining Diversity on Governing Boards

Diversity is important when it comes to board composition. Besides the moral imperative to include a broader representation of the world among member ranks, a wealth of data demonstrates that diverse groups make better decisions and are less prone to groupthink. As a result, some jurisdictions, notably the American states of California and Washington, have mandated a certain degree of diversity among those governing publicly traded for-profit businesses. Some nonprofit governance experts also believe mandates are in our sector’s future.

An article by David Katz, Laura McIntosh, and Wachtell Lipton in the Harvard Law School Forum on Corporate Governance re-examines the notion of mandating diversity in the wake of a state court in California recently striking down the requirement, especially as regards gender diversity. The court explicitly said that the goal is laudable, but that the mandate violates the equal protection clause in the California constitution. While this is not necessarily a precedent for other American states, let alone other countries, the authors offer both a call for greater diversity and a caution on rigid quotas. They go further to encourage an expanded notion of diversity even though "widening the aperture of diversity" will often result in larger boards with other problems.

"Taking a broad view of diversity enables boards to look not just to, but through and beyond the categories of gender and race as they seek candidates for open board seats. Boards need broad latitude to determine their own composition on an ongoing basis, and directors are in a unique position to understand both the company’s needs and the group dynamics of the board."

The take-away, we suppose, is that board diversity matters a lot, but so do many other factors when it comes to member composition. This is where governance/nomination committees do the most important work: creating a template for the ideal board for each individual institution. A design that works one place may appear tone-deaf somewhere else.