Good governance requires diversity. A corporate board can most effectively deliver on its responsibility to protect shareholder interests when it includes women, minorities and international executives with diverse skills, experiences, backgrounds and perspectives as Board Directors.

The more uniform a corporate board is, the more likely its members will think and act the same, making them less likely to challenge the status quo. Individuals who bring an objective point of view, a fresh approach, and ask questions, will be in a position to drive new initiatives and challenge established processes and procedures, usually for the better.

The exact impact of how board diversity correlates to shareholder value is hard to quantify since we do not operate in a vacuum. However, there is increasing evidence to show that shareholder value is strengthened when intangibles such as diversity, corporate social responsibility, workplace practices and customer satisfaction are embraced by a company, from the board through to the employees. Amongst others, a 1998 study by Amy J Hillman, Ira C. Harris, Albert A. Canella Jr. and Larry Bellinger came to the conclusion that “ethnic and gender diversity on boards is associated with superior stock performance”.

Another example of the relationship between corporate financial performance and such intangible business factors as diversity and corporate social responsibility is evidenced by the advent of new stock indexes covering such factors.

And, at minimum, the statistics relating to the ever-increasing purchasing power of minorities suggest that a board that reflects and understands the diverse demographic of their customer-base has a clear opportunity.

The rise in number of shares held by institutional investors (banks, insurance companies, retirement funds, hedge funds, or mutual funds) has increased the diversity of shareholders through their membership. Many institutional investor groups are now including the diversity of board members as a desired “good governance” policy - a representation of the interests of all stakeholders, including shareholders but also customers, employees, suppliers and the communities that the organization impacts.

For example, both CalPERS and TIAA-CREF (amongst others) give specific reference to diversity in their corporate governance policy statements.

There is also an argument that diversity of backgrounds on corporate boards will ensure the interests of non-shareholder stakeholders, such as employees and customers, are fully-considered.

Companies today are faced with evolving stakeholder expectations. The definition of who is considered to be a stakeholder in a business has broadened to encompass investors, employees, consumers, suppliers, regulators, consumer advocacy and activist groups, and communities.

Stakeholder groups are insisting upon higher standards of corporate governance. It is no longer enough for companies to act legally, pay taxes, be profitable and create jobs. Stakeholders want companies to contribute to broader societal goals as well. A board that reflects differences in attitudes, approaches, backgrounds ideas and affiliations, will show stakeholders that corporate leadership is both appropriate and aware.

If a company’s Board of Directors can show a natural inclination towards inclusiveness of new ideas and approaches, it will experience a significant positive impact on the perception of the company as an employer and on the recognition of the product/service it provides, which will ultimately be reflected in their bottom-line.

A consistent recruitment theme is that high caliber executives (of any age, culture, ethnicity, gender, geographic background, race or sexual orientation) are more attracted to an organization where diversity-inclusion initiatives are under-pinned by a fundamental belief, throughout the organization, in diversity as an economic imperative.

Not only can diversity at board-level be leveraged to attract the best talent, it can also be harnessed to retain talent. The logical next step in the above assumption is that once those high potential individuals are a part of an organization that places value on diversity-inclusion initiatives, retention rates will increase as employees take pride in those initiatives, viewing their firm as an employer of choice, where appreciation for all people and their differences creates a work environment where all can thrive.

Strategic diversity initiatives for board review include tying diversity initiatives to investment returns, supplier diversity, ethics initiatives, increased account/sales penetration in diverse geographies, philanthropic results, and positive multicultural marketing outcomes.

Diversity doesn’t just mean gender and ethnicity. As companies globalize, cultural diversity becomes just as important in understanding customers, recruiting and retaining employees, and maintaining strong corporate growth.

At the end of 2006, there were 49,783 directors on US corporate boards, serving 5,825 publicly traded companies (“What Directors Think” - The Corporate Board Member/PwC, 2006).

SEC, NYSE and NASDAQ all proposed variations on an increase in the number of “independent” outside directors, leading to new opportunities for outside executives.

In 2006, US corporate boards had an average of 1.59% inside directors per company, and 6.96% outside, “independent” directors per company.

In 2006, the Corporate Board Member/PwC report calculates 33,110 directors held just one board seat; only 671 individuals held more than 4 board seats.

The 10th Annual Corporate Board Effectiveness Study 2006/2007, conducted by the USC Center for Organization Effectiveness, states that 40% of boards surveyed have placed an upper limit on the number of boards that their independent board directors can serve on – a dramatic increase from 3% who responded affirmatively to the same question in 2001.

While this creates an increased challenge in filling board seats with experienced Board Directors, it offers significant opportunity for new outside executives.

As a result of the post-Sarbanes-Oxley changing role of the Board Director and increased accountability placed on boards, typical candidate profiles appear to be shifting from the traditional pool of (relatively homogenous) US corporate CEOs, to include a more diverse pool of potential Board Director candidates, including reports to the CEO, academics, and international executives.

One report, entitled “Who’s on Board” (by Eugene H. Fram and William J. Stevenson) states a 30% decline from 2002 to 2006 in the number of Fortune 500 outside directorships held by CEOs; another report they reference looks at companies in the Standard & Poor's 500-stock index over the same period and found a 38% drop in new outside CEO directors.

The need to attract and recruit a more diverse range of potential board candidates has required a board to reach beyond their own networks and the traditional recruiting-grounds of other public boards. The more leading-edge organizations are proactively broadening their outreach by proactively requesting a diverse slate of candidates for each and every board seat opening, often utilizing the expertise of a niche executive search firm.

All definitions below are only intended to give a brief overview of the responsibilities of each Board Committee. Each of the SEC, NYSE and NASDAQ has more detailed, specific requirements and regulations related to these committees, and many companies have added additional criteria/responsibilities of their own.

• Responsibilities include overseeing the financial reporting process, reviewing the choice of accounting policies and principles, monitoring the internal control process, and overseeing the selection and performance of the external auditors.
• In accordance with Securities & Exchange Commission (SEC) regulation, the Audit Committee must be composed of only outside directors.

• Responsible for ensuring the Board of Directors maximizes performance and minimizes risk, by proposing and monitoring the corporate governance practices adopted by the company.
• Identifies potential Board Director candidates consistent with the criteria established by the Board.
• Oversees succession planning for the CEO, and sometimes other senior management executives
• Also usually responsible for establishing criteria for assessing the “independence” of Directors, and for Code of Ethics design

• Establishes and reviews the company’s compensation strategy, in order to align compensation with corporate strategies and goals.
• Responsible for oversight and annual review of the CEO’s total compensation.
• Often also recommends base salary, bonus and other remuneration for officers, and approves benefits programs/ equity grants for senior management.
• Reviews and recommends to the Board, the annual retainer and other fees/equity grants for Board Directors, in connection with their service on the Board of Directors and various Board Committees.