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Inclusivity and belonging are a challenge for all of us – here are some solutions for individuals, leaders, organizations and society as a whole. ...
by Siri Terjesen Published 25 January 2024 in Diversity, Equity, and Inclusion • 6 min read
In recent years, there has been a noticeable shift in the composition of corporate boards, with more women and minority candidates assuming pivotal roles. However, as businesses grapple with economic uncertainties, the momentum towards more inclusive boards is slowing down, necessitating the implementation of proactive strategies to maintain progress.
One significant concern is the reversion to the familiar pattern of appointing new board members who are former CEOs and CFOs, leading to a smaller pool of women and minorities. Several destabilizing events, including the devastating Israel-Hamas conflict and Russia-Ukraine war, coupled with high inflation, have contributed to a decline in boardroom diversity in some major economies.
A new report from the executive search firm Heidrick & Struggles exposed the trend in the US for declining board enrolments. Last year, the percentage of new board seats in Fortune 500 firms filled by women dropped from 45% to 40%, while seats for racial or ethnic minorities decreased from 41% to 34%. Simultaneously, there was a surge in the number of ex-CEOs and ex-CFOs taking up board positions.
The situation is not unique to the US. The UK, for instance, witnessed a significant drop in the proportion of female and minority ethnic candidates appointed as non-executive directors by large listed companies. According to recent data from headhunter Spencer Stuart, last year, the percentage of non-executive positions occupied by women declined from 60% to 51%. Moreover, individuals from ethnic minority backgrounds represented 15% of non-executive board appointments, the lowest percentage since 2020.
Ironically, corporations have, in some ways, become victims of their own success. The declining diversity on boards can be partly attributed to the considerable strides made in recent years. This progress was largely propelled by gender quotas, reporting requirements, and voluntary targets.
For example, numerous companies strived to achieve the goal set by the UK government-commissioned Parker Review. It aimed to have a minimum of one minority ethnic director in FTSE 100 companies by the end of 2021 and in FTSE 250 companies by the end of 2024. However, with most companies achieving this target, the momentum has now slowed.
An additional problem is that economic uncertainty or financial distress can lead companies to postpone or cancel board appointments to conserve resources until the financial situation stabilizes. This leaves less room for new, more diverse directors to come in.
Moreover, during periods of uncertainty, board appointments are often made to address specific skills gaps. The need for expertise in areas such as technology and cybersecurity is crucial to safeguarding companies against data breaches. Unfortunately, these industries grapple with a lack of racial and ethnic diversity and gender imbalance, further compounding the issue of homogenous corporate boards.
“Economic uncertainty or financial distress can lead companies to postpone or cancel board appointments to conserve resources until the financial situation stabilizes. This leaves less room for new, more diverse directors to come in.”
Associate Dean, Phil Smith Professor, & Madden Center Executive Director
Siri Terjesen, Associate Dean, Phil Smith Professor and Madden Center Executive Director at Florida Atlantic University, holds a Ph.D. in Entrepreneurship & Strategy (Cranfield University) and a rich academic background. Her impactful research, comprising over 65 articles, 23 chapters, and awards for teaching excellence, reflects her significant contributions. Beyond academia, she excelled as a management consultant and international ultradistance runner.
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