Corporate Boards Are Too White, Too Male–And Too Old. Here Are 4 Ways to Fix That
A few months after I graduated from Stanford’s business school in 2013, Theranos was generating buzz on campus—and not all of it was good.
One evening, I found myself in a dinner party conversation with a group of some of the university’s brightest scientific minds. The still-unknown medical startup had been mentioned in the conversation. Raise nearly $100,000,000Since its founding, venture capital has been in high demand. Start on campus 10 years earlier, this group of grad students and postdocs—from fields such as bioengineering and microbiology—were roasting the company, despite its apparent success.
Many of these people knew Theranos well. Others were only familiar with the company’s product. Each of them was skeptical. They each lamented what they thought was the absurdity of Theranos’ promising technology.
Theranos was the only company I knew of. At the time, includedRetired four-star general and at least one former Fortune 500 CEO. He was also a former U.S. Among others. It was incredible to see the list of stars in business and politics. But, I was also intrigued by what this group knew about blood testing. As we would all come to learn years later, they didn’t know enough.
As the jury deliberates in the fraud trial of Theranos’ founder Elizabeth Holmes, too little attention has been paid to the failure of Theranos’ board and the lessons to learn from it. There will be many more Theranoses as more capital flows into private businesses that are not subject to public scrutiny or under greater pressure to maintain high valuations. In this new era of corporate malfeasance, they will be less likely to engage in accounting trickery and more likely to exaggerate the promise of their “disruptive” technology, overstate their growth, or misuse their customers’ data. What hasn’t changed is that their boards of directors will be the first line of defense.
But corporate America’s boards haven’t evolved much since the 20th century. These boards are becoming too white and masculine. Social pressure Regulative mandatesIt is important to hire more people of color and women. The boards also have too many industrial-era yes men who are dependent upon their CEOs. They’re not prepared for digital technology. Among companies in the S&P 500, the average board director is 63 and trending older, according to The Conference Board offers research.
Too many of today’s corporate directors lack the relevant experiences to meaningfully oversee executive teams, spot early signs of overreach, or steward their companies through coming business challenges. While more racial diversity and greater gender diversity are a positive step, it is far from sufficient. Future-looking boards should be more youthful, independent, and proficient in emerging fields like cybersecurity, artificial Intelligence, and Automation. It is important for banks, regulators, investors and institutions to work together in order to get these four items on board.
Make sure you are transparent with your board composition
More information is being disclosed by boards of public companies than ever. In 2021, 59% of S&P 500 companies The racial makeup of the population was disclosedIncreased representation on their boards to 24% from 24% in 2020 The demographic data should also be disclosed on private company boards. As an early-stage investor in several dozen startups, I encourage companies I’ve invested in to measure and manage board composition across metrics that not only include race and gender but also age, skills, expertise, management style, political ideology, and geography. Quantifying this information is the first step in understanding how the board’s demographics might make it susceptible to blindspots, and disclosing it will allow for better accountability.
Public posting of board openings
Board recruiting takes place largely behind closed doors at the moment. Companies can fill open board positions by utilizing their network or hiring executive search agencies, which reinforces the homogeneity of boards. Instead of being more opaque about it, businesses should be better. WhereThese people are looking for candidates to fill board positions. It is easiest to advertise open positions when they become available. Not doing so can actually be dangerous. Intentionally excluded. Public listings open pipelines to candidates outside of the organization’s existing network.
Find more independent directors
It is possible to make the most of the existing relationship between the company and the directors by increasing the proportion of those who serve as independent directors. Studies show that independent directors are more effective. Correlate with more transparencyBoards that are more independent Engage in less corporate misconduct. Independent directors with relevant industry knowledge are more likely to be successful.Greater earnings transparency, and higher returns from acquisitions. Recent years have seen independent directors become more youthful. About 16% of new independent S&P 500 directors in 2021 were under 50According to Spencer Stuart, executive search and consulting company, this is a significant increase from the 10% of all directors. While both the NYSE and the Nasdaq require a majority of a listed company’s board directors to be independent, no such requirements exist for private company boards, Independent directors make up 25% of the board directors in this country..
Incorporate age-related interview quotations
A company should have an age-related interview limit for any new seats on their boards. Similar to the NFL’s Rooney Rule, which requires that NFL teams interview at least Two applicants from groups that are underrepresentedFor certain executive positions and coaching, it is important that companies require boards to interview applicants whose age ranges are underrepresented. A PwC 2017 Survey, age was the highest rated diversity criteria among current board directors, with more than 90% saying it was “very” or “somewhat” important. Rooney Rules for board directors aren’t newIt is not, however adding age to the explicit diversity criteria would.
We live in a world that is constantly changing. Reddit threads are a great way to make or break a friendship.Stocks are for every company Ransomware is possibleDiversity is an accepted asset. Corporate directors must have technological knowledge, the ability to question corporate norms, as well as an intuitive understanding of markets and their needs. The best way to achieve this is by increasing transparency, becoming more independent, increasing disclosure and being more transparent.