Diversity Drives Change for Corporate Boards

For many years in corporate America, selection to a board of directors too often followed a familiar and similar pattern:

The candidate's main qualification was that he (and yes, it almost always was a "he") was a friend of the chief executive officer or some other corporate leader, and was expected to rubber-stamp the company's actions in return for compensation and other perks before retiring with lavish praise.

In the wake of corporate scandals in which complacent boards often were cited for sins of omission and commission, board membership has taken on a new seriousness and purpose. Courts clearly have established that boards have a duty to shareholders, first and foremost, and board members are faced with serious liability and consequences if they don't follow that duty of care. In addition to the increased exposure to risk, board membership these days requires hours of preparation and attendance. A study by the National Association of Corporate Directors places the average at 250 hours of service, or more than six work weeks a year.

And no longer are boardrooms exclusively the domains of white males. A new corporate commitment to diversity at all levels of business is beginning to have some impact in the boardroom as well.

"Diversity [in the boardroom] brings about a very robust and rich approach to looking at problems," says Stacey J. Mobley, senior vice president, chief administrative officer and general counsel of the DuPont Company, who sits on the board of the Wilmington Trust Company, a $5 billion financial institution headquartered in Wilmington, Del. "Different lenses offer different insights."

Anna S. Richo, associate general counsel for Baxter Healthcare Corporation's BioScience division, gives a concrete example of just how important diversity can be as it pertains to board leadership. As one of the first women named to the board of Cytyc Corporation, a women's health care company based in Boxborough, Mass., she says, "I can come out and say, 'I've got a sense how women will view this product.' I can ask questions that may not be top of mind for my male counterparts."

The time they take out of their busy schedules to serve on boards is rewarding, say several general counsel. "I try to take my legal hat off when I enter the board room," said David R. Andrews, senior vice president, government affairs, general counsel and secretary for PepsiCo. Inc.

"Companies do have general counsel, so that's not my role." Andrews, who sits on the boards of Kaiser Permanente, Pacific Gas and Electric Corp., and Union Bank, says he tries "to think more like the directors to make sure shareholder interests and the community welfare" are paramount. In addition, he said, board service has "given me a different perspective, working with my own board as corporate secretary. It gives a rounded view. It's a broadening experience."

The Road to Board Membership

How does one become a board member? Networking is still extremely important, several corporate officials said.

"To me, it largely was chance, circumstance, and opportunity," said Richard H. Glanton, senior vice president for corporate development at the Exelon Corporation, and a former board member of that company. "It was fortuitous, more than anything."

His prior experience as deputy counsel to the governor of Pennsylvania exposed him to numerous political and business leaders, who in turn asked him to serve on boards. He currently is a member of the boards of the Wackenhut Corrections Corporation and the Philadelphia Suburban Corporation, the largest investor-owned water utility in America.

James C. Diggs, who is senior vice president and general counsel for PPG Industries Inc. and a board member of Allegheny Technologies, believes he benefited from an effort by companies based in Pittsburgh to look at a broader mix of people to serve on local boards.

"I have been fortunate in Pittsburgh to participate in a number of non-profit activities, where I've become known in the community as someone who is involved in what goes on in the city," said Diggs. "It's important for lawyers to develop a business acumen as well as a legal acumen, and be viewed as someone who thinks more broadly than just about legal problems," Diggs continued.

Dupont General Counsel Stacey Mobley concurs. "Those opportunities come when people become aware of your skills.

Participate in your community. If you happen to have some business encounters, people will recall that and think of you when there's a board membership coming up."

Anna Richo's board selection came directly out of her work experiences for Baxter. As chief litigation counsel in a mass tort litigation, she often made presentations to Baxter's board. One of those board members "took note of me," she said. He was the chairman of the Audit Committee for Baxter, and asked her if she was interested in joining Cytyc's board. "It is still very much about networking," she said of the board selection process, and almost always includes a referral or recommendation.

While networking will always be a part of the board selection process, two leadership organizations – the National Association of Corporate Directors (NACD) and the Executive Leadership Council (ELC) – have formed a partnership to increase the diversity of corporate boards.

As part of that program, the NACD offers courses in four core areas of corporate governance: director professionalism, financial statements, audit committees, and governance and compensation.

"We've got to do more than say, 'Here's an African- American with great experience.' We've got to strongly encourage search firms to realize that the people who have gone through these courses are eminently qualified to serve on boards," said Roger Raber, the NACD's executive director. "In the past, it was your buddies who put you on the board; there were no criteria. Now, you need a little more objective approach than that."

Raber is skeptical of earlier efforts to diversify boards. "Affirmative action came along, and you had a woman on a board, then maybe a Latin American or Hispanic – it was the worst form of tokenism around. I thought that was horrendous," said Raber.

"What we do with the ELC is provide education to make sure [potential directors] have taken courses in the right topics and we've brought in search firms [to let them know that these candidates exist]," he said. "We want them to consider these candidates. We want to put some pressure out there."

In general, though, the best way to become a potential board candidate is "to choose a profession that gives you pleasure, and then do the best you can do," says Glanton.

"It can be in arts, culture, sports, or business – do the best in your endeavors and you will be noticed."

The worst thing a potential board member could do, Glanton added, is to "go out campaigning for a board position – that would be unwise and probably not result in your being appointed."

Since board service is filled with risk and is so time-consuming, the rewards must be immense, say several board members. Compensation alone is seldom enough to make it worth their while.

By serving on Cytyc's board, said Richo, "I get an unbelievable, much broader perspective on business. I can bring that to bear on my current job. It's almost a thrill to try to make it a perfect company; one you'd like your own company to be."

But, she added, "You have to have a passion about the product. Ninety percent of [what I like about Cytyc] is that it's such a neat company. Otherwise, you won't get the full enjoyment out of it."

David Andrews reinforces that view. His background is in administrative law, and each of the companies on whose boards he sits – the largest HMO, a utility company and a bank – has a unique regulatory structure that he finds challenging. "I'd been approached by other boards and said 'no.' My motivation was the type of work these companies do."

"The board I'm on is a well-run institution," said Mobley. "I really feel the values of the organization coincide with my values. I feel when I make suggestions or ask questions, there's an effort by management to take those suggestions very seriously. In the area of diversity, I made suggestions about staffing, and they involved me in recruiting people of color. That's the feedback that says my contributions are appreciated. It encourages further participation."

As a member of the executive committee of PPG, Diggs participates in all his company's board meetings from what he calls "a management perspective." But, he said, "When I was given the opportunity to go on the board of Allegheny, I was able to view the interaction of management with the board from a different perspective. It gives me a better feel for what our board [at PPG] is looking for."

However board members are chosen, and whatever sacrifices they must make to serve, corporate boardrooms need to be more diverse than in the past. Today's boards need to represent the world and environment that corporations serve and to obtain a diverse perspective, minorities need to fill these seats now more than ever, as indicated by Andrews.

"In terms of the boards I'm on and the communities they serve," said Andrews, "it is important to have a diverse perspective. Our constituents are a very diverse population. These companies realize that. In fact, it's crucial for any company that deals with the public in a state like California with a diverse population to reflect that diversity."

Diggs takes an even broader view. He believes diversity at the board level is important because it provides opportunities for different segments of the population to have an influence on the overall economic environment of our country. "Our economic environment can be enhanced from a number of different perspectives if you have people from various backgrounds and experiences playing significant roles in the corporate decision-making processes of major companies throughout our country and the world," he said.

"Most corporations' customer base is diverse and you want the board to reflect customers," added Mobley. And while acknowledging that many gains have been made for diversity in boardrooms, Mobley noted there is still more to be done.

"There are a lot of non-diverse boards still in corporate America – lacking in women and minorities," Mobley said. In addition, "A lot of companies fall into the trap of going back to the same well-known women and people of color and they're limited" in their ability to serve. In Mobley's view, companies need to start casting a wider net to have the ability to see able candidates coming along. This concept coincides with Raber's attempts to build a broader talent pool.

Wherever the candidates come from, diversity is the "best way to ensure that a company reflects the values of the culture, clients, and customers it serves," said Glanton.

"That's the great magic of America."

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From the November/December 2003 issue of Diversity & The Bar^®