Is Diversity Just Political Correctness?

The finding that struck me the most in Bank Director’s 2020 Governance Best Practices Survey was the answer to question 17. 

It asked: “Do you believe that greater diversity, defined by race, gender and ethnicity, improves the performance of a corporate board?”

Fifty-two percent of the survey respondents agreed with that statement. However, 40% believe that while diversity does improve a board’s performance, the impact is overrated; 8% simply said no.

More than 150 independent directors, board chairs and CEOs of banks under $50 billion in assets completed the survey, which was sponsored by Bryan Cave Leighton Paisner. Click here to review the complete results.

So, does diversity make a difference? Or is the pressure on U.S. public companies, including banks, to open their boards up to women and people of color just an example of political correctness? 

I believe that every bank board should aim to include diversity of thought, experience and perspective, resulting in what is often referred to as “cognitive diversity.” 

There is a lot of compelling research showing that groups or teams with cognitive diversity make better decisions than homogeneous groups made up of people with similar backgrounds who all tend to think alike. Cognitive diversity is more than just gender, race or ethnicity, but you won’t have it without those three important elements. 

Some of the country’s largest institutional investors are putting pressure on public companies to diversify their boards. An especially strong proponent is Larry Fink, CEO at BlackRock, the world’s largest asset manager.

“Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more diverse and aware mindset,” Fink wrote in his 2018 annual letter to corporate CEOs. “They are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.”

A new California law will require all public companies domiciled there to have at least one director from an “underrepresented” community on their boards by the end of 2021. In 2022, boards with four to nine members must have at least two directors from one such group, and companies with more than nine board members must have three. Failure to comply could result in a fine. 

The law defines underrepresented communities as people who identify as Black, Latino, Native American, Asian American, Pacific Islander, Native Hawaiian or Alaska Native. Included in the definition are people who identify as gay, lesbian, bisexual or transgender.

I sympathize deeply with the underlying intent of the law, which is to promote fairness and equal access to opportunity. And yet I worry that an unfortunate consequence of California’s new diversity law will be to politicize an issue that should be able to stand on its own merits. 

Diversity of thought on corporate boards makes good business sense. It shouldn’t require a state law to drive that point home.

What do you think? You can write me at jmilligan@bankdirector.com.
Jack Milligan is editor-at-large of Bank Director, an information resource for directors and officers of financial companies. You can connect with Jack on Twitter at @BankDirectorEd.

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