Lack of Industry Diversity on Boards Leads to Challenges

(Originally appeared in the December 13, 2017 'Across the Board' publication, a Board Director, Board Advisor and Business Newsletter reaching 23,500+ thought-leaders and visionaries in over 65 countries with articles focused on leadership, strategy and governance topics - sign up here)

Yes, I did get a chuckle when writing the title of this article. No, I am not suggesting your Board Directors are short - in their height or verbal responses... but I am addressing the seemingly universal affinity for companies to search and appoint Board Members who are overwhelmingly from the same industry, not to mention the same industry vertical. Have we become more aligned with 'diversity' solely as it applies to individual Board candidates' physical attributes and geographical ancestry while simultaneously overlooking industry diversity? Multiple recent experiences where I have been engaged to perform Board assessments have exposed a major lack of industry diversity - and the companies being served by these clone-Boards have suffered.

Industry Vertical: Companies that serve specialized needs and that do not serve a broader market. An industry vertical market is tightly focused on meeting the needs of a specific area (vertical) within one industry.

Not only do I advocate for various industry vertical expertise in your Board architecture, I prefer various industry expertise on your Board - in other words, Boards that have members from other industries different from your company's industry should be welcomed. This may seem counterintuitive, but the perspective and norm from other industries can offer up competitive advantages and prevent an insulated viewpoint within your company. With the speed of change in today's business environments, knowledge of emerging concepts and approaches, potentially incubated in other industries, could be the difference between your company's success or failure.

I have typically been harsh in my previous articles on a host of topics relating to nonprofit Boards, however, when it comes to industry diversity, nonprofit Boards actually lead the pack over private and public company Boards. This is likely due to the typically more abstract approach to appointing nonprofit Board seats, but nevertheless it has proven to ensure Board industry diversity in these organizations.

Combining gender diversity with industry diversity elevates 'diversity of perspective,' something extremely important to the companies that Boards serve. "Ultimately, the goal is to achieve diversity of thought; diversity of thought is achieved by intentionally recruiting people with varied backgrounds to a board that embodies inclusivity," states Robert Nelson in the NYSAE article, 'Board Diversity in Homogeneous Industry.' "An inclusive board is a welcoming board where members feel comfortable in expressing their views and everyone’s point of view is valued and considered."

'Diversity of perspective' leading to 'diversity of thought' is an important conduit to create in strategic positions - and this needs to be paramount in Board architecture considerations to ensure outstanding company results.