In a new "Using Your Platform for Good", Irene Liu, GC of Checkr, looks at California's new rules on board diversity and what larger impact it could have.
In September, the governor of California made headlines when he signed AB-979, a first-of-its-kind law in the U.S. that requires a public company in the state to have a minimum number of people from underrepresented communities on its board of directors by 2022. This follows a 2018 California law similarly designed to require a minimum number of women directors.
Over the course of my career, I have worked with many organizations that were trying to address the lack of diversity, particularly at the top of corporations. Trewstar, a search firm for companies that understand the need to place women on their boards, is one of the most impactful given their focus on placing women on boards.
I recently had the chance to sit down with two experts from Trewstar — Beth Stewart, founder and CEO, and Debra Sandler, a senior advisor and seasoned boardroom executive — to discuss California’s mandated board diversity laws and how those new rules will trickle down to organizations. As women who have been on the front lines of advancing board diversity and taking action within companies for several years, both have incredibly valuable knowledge and experience concerning the challenges companies face as well as the value of building that diversity.
Here are some of the highlights of our conversation:
Improving board diversity is not a new concern and is still a significant problem
Stewart founded Trewstar in 2011 to focus on placing women on boards. Although board diversity was an important policy initiative in Europe at the time, the United States lagged behind for its time. In fact, very few U.S. companies explored placement of diverse candidates on their boards, despite the vast pool of qualified women candidates available.
Stewart, for example, had many years of valuable experience as a senior-level investment banker at Goldman Sachs and wanted to contribute to corporations through a board position. But turnover on corporate boards is very low and fostering diversity and change is slow for this conservative group. And despite having 20-years of board experience on four public company boards, Stewart knew the system was stacked against her. She also knew it would be difficult to find a board seat unless she helped change the system. That’s when she started Trewstar to help introduce companies and open the door to a qualified pool of women.
Diverse candidates should be hired because they bring a necessary skill set, not because they check a diversity box
Many boards value a conservative approach, and board searches often get bogged down in interpersonal networks because people want to work with those they know and trust. Since only 25% of Fortune 500 board directors are women, it’s easy to fall into the trap of repeatedly hiring white males for board positions without a purposeful intention to diversify their boards.
In the same vein, companies often create requirements of candidates having CEO experience, which also puts women and people of color at a disadvantage. Companies should instead focus on the skills and chemistry that boards need because such narrow qualifications limit the talent pool and create bottlenecks for talent and diversity. For example, a division president will often oversee a bigger part of a large company than the CEO of a smaller organization. It would behoove a company to consider such division presidents.
While some companies adopt policies like the NFL’s “Rooney Rule” to spur diversity at the top, this well-intentioned initiative can turn into a checkbox exercise. You shouldn’t add a woman to the board because she is a woman; you should add her to the board because she has a skillset that the board and the company need. Board positions are too valuable to spend on just checking a box — and from a candidate perspective, nobody wants to be the “diversity hire” for a board.
That’s why Stewart and Sandler recommend adopting the “Trewstar Rule,” which involves interviewing only women. If you don’t find the right candidate in that pool, then expand the search to a wider candidate pool.
Once companies begin to see the quality and caliber of potential board women members, Stewart said she found that they are always blown away by the skilled, insightful talent of women executives. Indeed, fears about board chemistry are usually dismissed as executives find people with whom they click. Many times, Trewstar even ends up putting two women on the board because these candidates are so amazing. Companies then begin to see the level of success these women executives bring, and they happily embrace the search for women directors instead of feeling compelled to do it.
Increasing board diversity should not be a battle, and there are no losing sides.
Hiring women and underrepresented groups for positions of influence is not about diminishing any particular group. After all, improving diversity empowers everyone.
Since systems don’t change on their own, legal steps are sometimes necessary, such as what California has done. Such legal developments there and elsewhere have created openings on boards, and companies are beginning to understand that diversifying boards is the right thing to do.
Sandler said she believes that we wouldn’t have seen change if people had not been forced, but now that diversity on boards is a trend and a legal mandate in California, there’s increased attention on recruiting strong women and minorities throughout the U.S.
Given these transformative developments, we need both men and women of all backgrounds to work together to bring about real change and open their doors to a qualified pool of diverse board candidates.