For many businesses, fiscal-year 2019 already looms, demanding that CFOs reassess the budget and outline new plans to capture growth in the year ahead. While that can often be a tedious and painstaking process, it offers CFOs an opportunity to revisit current operational strategies and explore new avenues to drive business objectives forward.
One crucial area that I urge CFOs and other business leaders to capitalize on is the often-overlooked subject of board diversity.
As Deloitte’s 2017 Q4 Signals Survey revealed, 74% of CFOs rated current economic conditions as positive. This resounding sense of optimism affords CFOs the opportunity to pursue innovative growth strategies. Such efforts can be facilitated by expanding board diversity and thereby reinvigorating fresh leadership perspectives in the boardroom.
In recent years, the idea of diversity has reverberated throughout organizations as business leaders work to expand and build a more inclusive workforce. However, these conversations frequently fall short of underscoring the inherent business merit of elevating and incorporating diversity at the highest levels of organizations.
In planning for fiscal 2019, I recommend that CFOs consider the strategic benefits of investing more resources in enhancing boardroom. Boards of directors that successfully implement new strategies to disrupt recruitment practices and expand diversity can be best positioned to outpace competition.
It’s no surprise that a recent Deloitte survey found that 95% of board-member respondents agreed that their respective boards need to seek more candidates with diverse skills and perspectives. However, this near-universal consensus has not yet manifested itself within corporate boards. Most of them remain stuck in cycles of sameness and uniformity, often because of outdated recruitment pipelines.
As CFOs know all too well, maximizing budgets for optimum output requires fresh eyes, frequent reassessments, new ideas, and new approaches. Stagnant line-items that no longer add strategic value should be eliminated or revised.
In a similar fashion to how CFOs approach a budget, C-suite leaders should also reassess board composition and planning. The current pace of change and speed of business are undeniably transforming how organizations operate and mandating increased flexibility and agility. From this vantage point, dynamic board diversity is not just a business advantage, but a business imperative.
To meet contemporary business challenges, we should expand the definition of diversity beyond demographics to encompass varying skillsets, perspectives, backgrounds, and experiences.
Deloitte’s latest research shows that nearly 90% of board members believe gender and racial diversity alone do not produce enough unique viewpoints for a company to be innovative or to tackle disruptive challenges.
Instead, we should view demographic diversity as one piece of a much larger puzzle. Building a board armed with complementary capabilities can be a cost-effective and efficient approach for facilitating success in the boardroom and across the enterprise.
Each new board member can be viewed as an investment in the future of a business. After all, these individuals are responsible for navigating around obstacles to help ensure the organization remains on track and achieves benchmark objectives.
CFOs are well-accustomed to the strategic need of diversifying assets and exploring the value-add of different investments. However, these practices have typically not been applied to the pipeline that feeds talent into boardrooms. That should be revisited.
Deloitte’s survey found that 87% of board members continue to source talent from a relatively small and similar pool of candidates, most of whom are current or retired CEOs. The same survey revealed that, within this select pool, the average percentage of board candidates representing a racial minority stands at a meager 19%. The statistic is even lower for women, who represent an average of just 16% of candidates.
As corporate boards are responsible for overseeing risk and governance, sameness of perspective and background can fundamentally limit visibility into potentially detrimental pitfalls. However, only 16% of board members surveyed by Deloitte cite enhancing diversity as a strategic objective. This current mindset doesn’t appear to reflect the essential need to build the greater board diversity required for broader business strategies.
As mitigating risk is one of the most important responsibilities for CFOs, I believe these leaders are in a prime position to affect meaningful change and guide business objectives toward enhanced board diversity.
The foundation for increasing board diversity can require a strategic investment in data-driven tools and solutions for the C-suite to successfully build board composition.
While CFOs invariably rely on gut instincts to some degree, many remain closely committed to process-oriented approaches for making decisions. Part of the decision-making process for CFOs is to consult data, analyze findings, and determine justifiable conclusions. It’s my belief that such data would strongly fall in favor of greater corporate diversity.
In running a cost-benefit analysis on how boards recruit potential candidates, CFOs would likely note several shortcomings in current processes for identifying candidates. Fortunately, though, there are solutions.
Chief among them is to actively incorporate succession planning into the board-member selection process, placing an emphasis on filling seats based on understanding the concrete needs of an organization. Furthermore, boards can benefit from term limits or mandatory requirement ages, which can enable more turnover and present the board with fresh perspectives.
Now is the time for business leaders to tackle the shortcomings of diversity in boardrooms and capitalize on this unique growth opportunity. Investing in people and encouraging diversity at all organizational levels can help ensure that companies stand ready to meet the challenges and opportunities that confront businesses.
From mitigating risk and stale decision-making to welcoming fresher ideas and more varied perspectives, expanding board diversity represents a unique opportunity for CFOs to invest in securing corporate governance and facilitating innovative solutions.
Mike Fucci is chairman of the board at Deloitte.
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