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Nov 09, 2014

New push for board diversity -- but not in the US

With threat of quotas believed to be driving UK initiatives British directors organization has practical tips for broader recruiting

With US companies making scant progress on board diversity, there is fresh inspiration to be found across the pond.

Earlier this week, the UK’s Secretary of State for Business, Vince Cable, announced an initiative aimed at bringing more members of ethnic minorities into the boardrooms of the largest UK companies. The eventual goal is that one in every five directors will come from a non-white background. As the Guardian website reported on Sunday, a study of the top 10,000 UK executives released this year finds that more than half of FTSE 100 companies have no non-whites serving on the board while two thirds have no full-time executive directors from ethnic minorities.

The Institute of Directors (IoD) supports Cable’s initiative, to be launched in December, and already has two related events scheduled for later this month, according to Edwin Morgan, the IoD’s deputy head of media relations. One is a reception with Chuka Umunna, a prominent young black member of parliament and shadow business secretary (from the opposition Labour Party), that will focus on encouraging more young entrepreneurs of all ethnic backgrounds. The other is a Business Ethnicity Summit that will feature Tidjane Thiam, CEO of Prudential, the UK insurance group, and the first black chief executive of a FTSE 100 firm.

There’s reason for optimism that a push for broader ethnic representation in UK boardrooms will gain ground. As a result of Cable’s earlier campaign to boost gender diversity on UK boards, women now occupy 22 percent of FTSE 100 board seats, compared with 12.5 percent when the initiative started in 2011.

Some governance experts are skeptical about how receptive companies actually are to such initiatives. But Morgan believes UK firms have embraced Cable’s push for board diversity out of ‘recognition that unless businesses did something voluntarily the government would intervene’, much as it has in Norway and a handful of other European countries. ‘British businesses looked at that and said, We don’t want that. They’re worried about tokenism and think it would undermine boards,’ he explains.

Progress on gender diversity in US boardrooms has been more sluggish and the profile of ethnic diversity on US boards is nothing to celebrate. A registry of African Americans on corporate boards published by Black Enterprise in August shows 176 African American directors at the largest 250 S&P 500 companies, and 74 companies with no African American directors.

At the Global Conference on Women in the Boardroom in September, US Secretary of Commerce Penny Pritzker called diversity in corporate leadership ‘an issue of economic competitiveness’ and said ‘the presence of more women in the boardroom and in the corporate suite is critical to companies’ creativity, performance and ability to thrive in the 21st century.’ But it’s hard to imagine her spearheading an initiative like Cable’s, probably because there’s not even a remote possibility of the US government threatening to impose diversity quotas.

For its part, the National Association of Corporate Directors (NACD) published a Blue Ribbon Commission report on diversity in 2012, as well as several white papers and articles in NACD Directorship, a spokesperson says in an email. ‘Further, the NACD Directorship 2020 Initiative emphasizes the importance of diversity in the boardroom, among other key, important aspects that [strengthen] strategic assets in the boardroom.’

The commission was tasked with identifying barriers to diversity and providing a road map to introduce new perspectives to the boardroom. The result was a three-step ‘strategy of inclusion’ that asks boards to discuss their current composition, select and implement solutions to improve board diversity, and disclose their search process and the potential value diversity brings to the board.

The NACD has yet to report any tangible results from the commission’s strategy. Meanwhile, in the UK the IoD is ‘trying to open up the process of where we look for candidates and open up the interview process as well,’ says Morgan. The IoD is urging companies to take practical steps when recruiting new directors, such as rethinking the publications and websites where they place advertisements for board and executive suite openings.

Another focal point is executive search firms. ‘Companies have the ability to say to recruiters, We want you to go after a wider range of candidates,’ says Morgan.

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary