Ethnic and Racial Diversity in the Boardroom: Its Time Has Come.

• Author: Chase, Scott
• Position: DIRECTORS TO WATCH

Boards increasingly have to demonstrate a certain level of sensitivity and enlightenment as it relates to diversity in the boardroom.

But the question is, if a truly diverse group should reflect the demographics of the surrounding area and population, how does that break down for corporate boards?

The United States officially recognizes six racial categories: White American, Black or African-American, American Indian and Alaska Native, Asian-American, Native Hawaiian, and Other Pacific Islander. In addition to racial categories, the U.S. Census Bureau classifies Americans ethnically as Hispanic or Latino or not.

The summer 2016 census shows that white Americans are the racial majority, and African-Americans are the largest racial minority. After that, it gets confusing, mixing race with ethnicity, but in principle (and rounding up) whites account for 61% of the population, blacks for 13%, and Latinos for 18%, with the remaining 8% split among various categories of other.

So, what should a theoretical 12-person corporate board look like? Pure math doesn't solve the problem, and then there's a whole host of other factors. Is your company engaged largely in sales of consumer goods to, for example, the parents of toddlers and young children? Does that focus tilt the scales toward more women on the board, or not? Is it a provider of energy or petrochemicals or some other high-tech deliverable, suggesting perhaps that diversity on the board might be secondary to considerations of scientific or manufacturing acumen?

For boards, chief executives and chairpersons, this all presents a quandary: Do we as a board hazard being called to account for lack of diversity or are we convinced that everyone on the board is eminently qualified to weigh in effectively on the risks and opportunities confronting our businesses, regardless of racial/ethnic/gender splits?

Gender has been the biggest focus.

The state of California recently passed a law requiring a certain number of women directors on public company boards. It's not a stretch to believe that similar initiatives aimed at structuring ethnic and racial diversity in the boardroom are not too far behind. While legal challenges are sure to abound as these efforts evolve from ideas to policy, the trends are pretty clear.

Revealing a less "regulate-able" approach, albeit one that might be even more effective, State Street Global Advisors recently announced a new board gender diversity voting guideline. Beginning in 2020, State Street will vote against the entire slate of directors on the nominating committee of a company that has an all-male board and has not "engaged in successful dialogue on State Street Global Advisors' board gender diversity program for three consecutive years." The power of the dollar in this case may be more compelling than the power of the pen.

Diversity, however, is more than just adding women to the board. Merely replace the word "gender" with the words "ethnic and racial" in just about any formula, including that of State Street, and it's easy to see where all this is going. Boards may not have to prove that ethnic and racial diversity has contributed to revenue growth or marketplace agility, but they have to prove they take it seriously.

"From the perspective of those concerned with effective corporate governance, increased diversity in the boardroom is a valuable and important goal," according to a Sept. 21 memo authored by Theodore Mirvis and Kevin Schwartz of Wachtell, Lipton, Rosen & Katz. "One can readily appreciate the concerns of those who believe that achieving that diversity has taken too long. A robust debate about various methodologies and strategies for advancing the cause of diversity will doubtless yield results in the near term. Boards and investors share a common interest in this subject. The key is to find the right path forward, while recognizing that the time for removing all barriers to increased diversity is overdue."

The authors don't even bother to quantify the kind of diversity they espouse. To do so would be old-fashioned thinking. Effective boards of the future will need to factor recognition that diversity of nearly every variety is at least good optics, if not a great platform for continued success, into the equation of board composition.

The following is a list of directors to watch who bring diversity and expertise to the boardroom:

Lauren C. States

Director, Clean Harbors, Inc.,

Webster Financial Corporation

Lauren C. States is an experienced technology executive, having spent her career at IBM addressing complex business challenges in a broad variety of roles including technology, strategy, transformation, sales and talent development. She was a leader in IBM's transformation to cloud computing, serving as chief technology officer in the corporate strategy function.

Lauren serves as an independent director on the publicly held boards of Clean Harbors, Inc. and Webster Financial Corporation. Across these boards, she serves as a member of the audit, risk, and environmental, health and safety committees. Lauren has a CERT certificate in cybersecurity oversight, issued by the NACD and Carnegie Mellon University.

Lauren serves on several nonprofit boards and was named one of the "Most Influential Black Corporate Directors" by Savoy Magazine in 2017.

She holds a B.S. in economics from University of Pennsylvania's Wharton School and completed a fellowship with Harvard University's Advanced Leadership Initiative in 2015.

Best practices help define great governance: Fast-paced changes in industries and market dynamics, disruptive technological advancement, business model innovation, and an uncertain geopolitical landscape require boards to continually evaluate and enhance enterprise risk management oversight to help execute the strategy effectively and generate shareholder value. Best practices in this environment include regular discussions that encompass both current and emerging risks; mapping risk oversight against the board and committee structures; and assessing and remediating board skill gaps through education and/or director recruitment. High performing boards bring diverse experiences and expertise to these challenges, collaboratively identifying key areas for action while assisting in strengthening organizational resilience.

Cora M. Tellez

Director, HMS Holdings, Premier Pacific Bank

Cora Tellez is founder and CEO of Sterling Health Services Administration. Sterling provides account-based services (HSA, FSA, HRA, Cobra,) linked to health benefits. Sterling also offers a new service called Amazing Care Network intended to help employers and employees navigate social and medical issues associated with care giving and aging. Tellez has 25 years of management experience in health care finance and delivery.

In October Sterling was named one of the Top Woman-Owned Businesses in the Bay Area and ranked number 20 of the Top Woman-Owned Businesses in the East Bay by the San Francisco Business Times.

Tellez currently serves on two publicly traded boards: HMS Holdings and Pacific Premier Bank. She also serves on two nonprofit boards: Institute for Medical Quality and the Hawaii Healthcare Alliance (board chair).

A duty of care and loyalty: It's an overused term, but it bears repeating: Boards owe a duty of care and loyalty to the company they oversee. To me, that has meant a focused role for a board to ensure three things: 1) the company's CEO's actions and motivations are aligned with the long-term success...