Legislation signed by Gov. Jerry Brown takes effect in 2019 requiring that California-based publicly traded corporations place women on their boards.
I have reservations about legislating board membership quotas because that process can side-step merit. But I applaud the spirit behind California’s landmark mandate to increase the number of women on boards at publicly traded companies headquartered in the state.
Most firms in California and elsewhere still have few, if any, women among their highest paid executives and board members. I learned this when overseeing an annual study while at the University of California, Davis before coming to Southern Methodist University (SMU) in Dallas.
Qualified women are available. They bring balance to boards by contributing business insights that can increase efficacy of a leadership team. Women should be added for their skills, not simply to increase gender diversity.
The recent California legislation, however, does not address how increasing diversity impacts boardroom deliberations.
Research shows the work of integrating more diverse perspectives and ideas into boardrooms is more challenging than a simple legislative declaration.
I recently published a study based on the board actions of a public company in the Midwest as it added new directors to its board, including women and shop floor employees.
The data generated from our research team at University College London, SMU, and Cornell University and were based on first-hand observations of conversations and interactions by directors inside the boardroom during 31 board meetings over a five-year span.
Our findings caution that corporate leaders are mistaken if they think adding gender or racial diversity alone is an autopilot solution to improved governance or corporate performance. Our data revealed that board composition transitions can lead to new boardroom complexities.
Those complexities emerge not because women or other directors representing diversity were less skilled or qualified. In fact, other research suggests that, at companies where women and other groups are strongly represented in top management, firms may perform at higher levels based on, for example, fresh strategies or greater savvy in managing risk.
The complexities of the board we studied, as discussed in our 2017 article, “Decision Diversion in Diverse Teams: Findings from Inside a Corporate Boardroom,” reflected changes in interactions stemming from transitions in the board’s makeup.
We found that, over time, information analysis gave way to decisions reached by negotiating various subgroup interests.
Those decisions satisfied different goals than the board’s core task of ensuring financial stability. We referred to this pattern as “decision diversion.”
American companies wanting to infuse diversity into their boards should do so, and learn the lessons from the board we examined by being mindful of inevitable shifts in boardroom dynamics.
Boards that add to their diversity must redouble their plans to embrace and integrate new directors to minimize the emergence of informal subgroups or coalitions that can result during the transition in board composition.
In California, where such changes have been mandated, the need for such plans is particularly acute.
Boards must avoid the check-the-box mentality and develop new capacities to accommodate different points of view by women and others.
Boards must also add training programs and prepare board chairs and lead directors to successfully cultivate the valuable, yet complex, new diversity-based dynamics that will increasingly impact deliberations inside the boardroom.
Steven C. Currall is provost and vice president of academic affairs and a professor in the Cox School of Business at Southern Methodist University, [email protected]. He wrote this commentary for CALmatters.