The new diversity on the board.

• Author: Hallagan, Robert E.
• Position: Board of directors - Leadership in Environmental Initiatives

Just as many corporations are restructuring the way they do business, they are also restructuring their boards of directors in response to dramatic demographic changes, increased shareholder activism, and the emergence of a truly global market. While most board seats continue to be held by white males, the trend is toward achieving a diversity of viewpoints, experiences, and cultural backgrounds that can be turned into competitive advantage.

Boardroom diversity has moved beyond rhetoric. This trend is motivated not so much by altruism as it is by a recognition that diversity makes good business sense: Diversity contributes new sources of energy and creativity and different perspectives that should add up to more comprehensive deliberations by a board.

CEOs cite a variety of reasons for favoring heterogeneity on their boards over a single demographic profile. Diversity encourages an awareness of cultural, linguistic, and social nuances that is required for successful marketing strategies. And increasingly sophisticated consumers are using their buying power as a lever to encourage certain kinds of behavior and policies.

Investors, too, cede more trust and, therefore, more latitude to boards that appear to grasp and appreciate their full range of interests. Institutional and individual holders are demanding that boards take into account the needs of all the publics in their sphere of influence.

Corporate leaders are pursuing diversity in their work forces and their boards of directors as a strategic business objective, not just a demographic happenstance. These efforts are yielding results.

A study, The New Diversity: Women and Minorities on Corporate Boards, recently released by our firm of the largest public companies in the U.S. shows that representation by women and minorities on boards of directors has increased by more than 20% in the last five years. Today, nearly six out of every 10 companies, or 59%, have elected a woman or a member of a minority group to their boards. Sixteen percent of the 806 companies we studied had two or more women as directors, and another 6% had two or more minorities represented. Another noteworthy finding is that non-U.S. directors now account for 3% of the total.

Using these data, we project that by the turn of the century, more than 70% of the largest 1,000 U.S. companies will have a woman as a director, and more than 40%, a minority member. Together, these two groups should account for 15% of all...