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Diversity in the Boardroom & the Importance of Appointing First-Time Directors

Startup Boards for CEOs Series: Post 4 of 10

Some people, when looking back at 2020, will remark what a difficult, turbulent year it was. They’ll point to protests following the George Floyd murder, to COVID-19, to stay-at-home orders, to the divisiveness of the country, to election uncertainty, and they’ll conclude that 2020, like the Charles Dickens novel, was the “worst of times”. I don’t know if very many people will look back on 2020 and say that it was the “best of times,” but I’m hopeful that founding teams and startups will look at 2020 and say, “that’s the year we drew a line in the sand and started diversifying our board. It was the best decision we ever made.”

Skeptical? Think that board diversity is something that only global corporations have to wrestle with? Unlike the slow corporate behemoths mired in historical bad practices, early-stage companies can change the world with their products and with their board appointments.

I’m not going to belabor the point about the value to companies and to society of having more diverse boards. If you’re not aligned with that perspective, a blog post won’t convince you otherwise. If you want to be intentional about creating a diverse board, here is perhaps a different way of thinking about it and articulating it to others – and what I think is the two-step formula of how to go about doing it.

While academic research on whether or not diverse boards lead to better company performance are mixed, which surprised me when I dug into it a bit, the research about more diverse teams being higher performing and more innovative than homogeneous teams is not mixed. My experience bears this out as well. One recent article I did find interesting on this topic in a Harvard Business Review article entitled When and Why Diversity Improves Your Board’s Performance has a nuanced view in favor of board diversity. The authors found that it’s diversity of thought and perspective that drives a board’s (and ultimately a company’s) success, rather than individual measures of diversity like gender or race or age.

Building more diverse societal leadership is nothing but good in terms of how we as a society make decisions, empower all citizens equally to make a difference, and role model leadership for everyone. As a society, we need to be better at ensuring that both diversity of background, gender, and race AND diversity of thought make it into the leadership ranks of all kinds of institutions, from government, to military and law enforcement, to academia, to the corporate world. If the HBR article is accurate, I’d note that demographic measures of diversity are often key DRIVERS of diversity of thought and perspective as well, so pursuing an agenda of building a more diverse board gets you both benefits.

Our biggest opportunities as startup CEOs to make a difference here is to make sure we are hiring executives and appointing independent directors (widely considered to be the “pinnacle” of corporate America) who bring that diversity of thought and background to help our companies be more successful, and to role model opportunity and leadership for our employees and customers. But putting diverse people on your board for diversity’s sake isn’t really a solution. It just allows you to say, “we have a diverse board,” but if diverse voices aren’t heard and integrated into the board (let alone qualified - more on that in a minute), then you really don’t achieve the benefits of diversity. That onus to effectively lead your board is on you and/or a chairman or lead director if you have one.

Regardless of your current board’s size and composition, if you want to diversify your board you’ll have to be intentional about it, and you’ll likely have to initiate the conversation with the group. Step 1 in this formula, as I mentioned in my previous blog post is by ensuring that you have an appropriate number of independent directors on your board, since that’s your main opportunity to add diversity of any kind to the mix.

Once you’ve done that, Step 2 in the formula to having a more diverse board is to be willing to appoint board members who have never served on a board before. It’s not much of a secret, but it’s kind of a second-order idea. As with hiring executives, the best way to ensure that you end up with a diverse board over time is to widen the top of the funnel of candidates. The single biggest stumbling block to getting this right is the near-universal requirement I have heard throughout my career from CEOs that “I only want board members who have previously been a CEO or served on a board.”

If that’s your requirement, you can be nearly certain that your available talent pool for independent directors will be largely white and male (as a black startup CEO I’m friendly with says, “there are something like 25 of us black execs who are on all of the boards - we just keep getting recycled instead of people tapping into new talent”). I get it – there are perspectives that ONLY a CEO will bring to the table that are incredibly valuable to you as a CEO looking to balance out an investor-heavy board. What’s more, if you’re relatively young or a first-time CEO, you may not want to – or feel capable of – training someone on how to be an effective board member. I’ve been in both of those places at various points in my career as a CEO. But I’ve also had amazing experiences with first-time board members who were just the right people with the right experiences for our company’s needs at a point in time, too. Adding directors who are industry experts can be tremendously helpful in driving product-market fit or opening doors even if they’re not helpful at being the voice of a CEO.

Simply put, if you have a commitment to broaden the diversity of your board, you have to stand behind that commitment with a willingness to take on and mentor up first-time directors, or lean on other board members to help with that process. Hopefully over time you can have enough independents on your board so that you have a CEO/former CEO/experienced board member but aren’t ONLY looking for that profile. The fact is that every single board member alive today at one time had ”never served on a board” too.

As venture investor Heidi Roizen wrote recently about this first-time director conundrum:

This to me is like saying, “I’d like to get married, but I’m optimizing for someone who has already been married because I don’t want this whole marriage experience to be new to them”…Look, I sort of get it — having myself been a director for dozens of public and private companies over the last twenty five years (I serve on two public boards and four private boards right now) I understand there is an art and skill to being a board member. But should that be the top criterion? I for one believe that smart, capable people can learn what it takes to be a good board member very quickly, especially if they are onboarded properly and mentored through the process…We treat board service like it is some magical, secret and superior skill set that only a rarified few can accomplish. We act as if the risk is simply too great letting a newbie into our hallowed halls. And yes, there is skill and knowledge particular to doing a good job as a board member. But I believe that If you are already an experienced, accomplished business executive, it is just not that hard for you to learn how to be a good director.

In subsequent posts, I’ll be talking about how to look for board-ready candidates who might not have board experience; how to interview and onboard them properly; and how executives who want to be considered for board positions need to prepare themselves for their first one.

- Matt Blumberg, March 4, 2021