Business Costs & Regulation

Stephanie Creary: Making the Case for Diversity on Corporate Boards

Adding underrepresented voices can improve a company’s bottom line.

Stephanie Creary is assistant professor of management at the Wharton School at the University of Pennsylvania, where she is an identity and diversity scholar. She has researched workplace diversity practices at a variety of organizations, including corporations, hospitals and the U.S. Army.

Why should investors care whether a company has a diverse board of directors? McKinsey & Co., a management consulting firm, has found that companies with diverse boards outperform their peers. There’s also a lot of academic research that has analyzed the relationship between the composition of top management teams and financial performance. For example, a recent study from the University of Texas at Dallas found that firms that were diverse in upper and lower management performed better than other firms. Their workers were more pro­ductive, too. That’s good for the bottom line.

Won’t some companies be tempted to add a token woman or minority to their board? How can that be avoided? First, if you’re a company, you don’t just pick any person of color or woman. You pick people you believe in who will help contribute to the gaps in expertise that you have. And you don’t pigeonhole them into being a single-issue director.

Next, you need to have other players hold corporations accountable. For example, State Street, a major investment management firm, has said that it will vote against board members of companies that fail to disclose the racial and ethnic makeup of their boards. And Nasdaq recently proposed requiring that every company listed on its stock exchange have at least one woman on its board and one board member who is an underrepresented minority or LBGTQ. The firms that don’t meet the standard will be required to explain why they can’t. That’s holding companies accountable.

In 2019, the Business Round­table, which is made up of the chief executives of the largest U.S. companies, issued a statement encouraging members to take into account the interests of employees, customers and their communities when making business decisions. Have major corporations embraced this philosophy, particularly when it comes to minorities? Yes they have, but one size doesn’t fit all. Target is a good example. After the protests in Minneapolis over the death of George Floyd, the company decided to reopen a store that was damaged by the riots. Target’s approach was to have conversations with people in the community, not just community leaders, about how the store could address their needs. JPMorgan Chase and Citigroup announced last fall that they are changing their lending practices to make sure that people of color have access to mortgages. JPMorgan Chase also said it’s going to tackle the lack of diversity in its own workforce.

When can investors expect to see the results of these initiatives? Investors tend to measure company progress quarterly, but that’s very short-term. A better benchmark is one year from an announcement that a company has changed the composition of its board or has made a com­mitment to any other social justice movement.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
The Current Plan for $1,400 Checks
Coronavirus and Your Money

The Current Plan for $1,400 Checks

Here's what you need to know about the stimulus check plan currently being considered in Congress for President Biden's COVID-relief package.
February 18, 2021
Want More Tax-Free Retirement Income? One Man’s Whole Life Decision
life insurance

Want More Tax-Free Retirement Income? One Man’s Whole Life Decision

Whole life insurance might not be something that’s on your retirement planning radar, but for this client, here’s how it served his need to control ta…
February 23, 2021

Recommended

A Talk With Carrie Schwab-Pomerantz
Women & Money

A Talk With Carrie Schwab-Pomerantz

Investing is the key to building a nest egg that will last a long lifetime, says Schwab-Pomerantz.
January 27, 2021
The Pandemic Has Hit Women Hard: 6 Tips to Bounce Back
women in business

The Pandemic Has Hit Women Hard: 6 Tips to Bounce Back

The COVID-19 pandemic has been a real blow for women financially, but while the statistics are sobering, there are some things we can do to recover.
November 6, 2020
Women, Invest in Yourself
Women & Money

Women, Invest in Yourself

Morningstar's Christine Benz tells women to match investment risk to their longer life expectancy.
October 1, 2020
Fresh Voices in Personal Finance
Women & Money

Fresh Voices in Personal Finance

An impressive number of young women have entered the personal finance field via blogs, websites and social media.
August 26, 2020