Wharton@Work

October 2023 | Management

Diversity on Corporate Boards: More Profit, Lower Risk

Research by the London Business School confirms a decade of similar findings: companies with more women on their boards have higher returns on equity, higher valuations, lower likelihood of shareholder dissent, and stronger boardroom relationships and collaboration. The message seems to be resonating, as the number of women on corporate boards continues to climb: over 40 percent of the 626 new director appointments in the 3,000 largest U.S. companies were women. Wharton professor Mary-Hunter (“Mae”) McDonnell, who directs the Women on Boards: Building Exceptional Leaders program, says, “Diversity of all kinds increases the depth and breadth of discussions and monitoring. When you have people approaching the same question from different perspectives, you're more likely to see the problematic angles of an issue that you wouldn't have otherwise seen. When people share backgrounds and even demographic identities, they tend to coalesce around things that they have in common instead of thinking about things from a more complex vantage.”

Diversity: Beyond Gender and Race

Susan Kelliher, chief people officer at The Chemours Company, agrees. She attended Women on Boards and now sits on the board of the National Safety Council (NSC). “The National Safety Council is the nation's oldest and largest safety association, focused on making an impact on roadways and in the workplace as an advocate for safer vehicles, reducing musculoskeltal disorders, and addressing impairment no matter how it occurs — drugs, alcohol, fatigue, or mental distress. I am the only CHRO on the board and my experience leading human resources and environmental, health, and safety in a public company provides a fresh perspective as the NSC drives its strategic priorities.”

“Diversity of experience and thinking should be a priority, and I believe the CHRO function is often overlooked,” Kelliher continues. “Those of us in this C-suite role can provide a deeper understanding of the critical elements that are top of mind for today’s boards, such as executive compensation.” She says McDonnell and other Wharton faculty “helped clarify my role, including recent governance issues and other emerging topics that affect current expectations of board members.”

“I understand challenges like executive pay and the critical tension around sustainability and diversity, and I bring that perspective into the boardroom,” she says. “I sit on the compensation committee because of my experience in this area. I engage with the National Safety Council’s head of HR quite regularly. As the NSC launches an RFP for a new compensation consultant, I'm able to support that work.”

Preparing for the Role

The most recent addition to Wharton’s board leadership programs, Women on Boards provides an in-depth look at the process of recruiting and selecting directors, among other topics. The program is taught by Wharton experts on leadership and board governance, including Dean Erika James. In addition to developing a greater understanding of board service and today’s most pressing corporate challenges, it helps participants build their personal brand through strategic use of social media; the right speaking engagements; networking; and putting together a board bio, CV, and LinkedIn profile.

“A good board member can anticipate challenges that could arise,” says McDonnell. “Directors must be able to look for blind spots and help tackle the looming next generation of board issues that companies are going to face: climate change, increased wealth disparity, political instability. In the program we are training leaders to tackle these non-market issues with more diverse profiles and experiences.”

Kelliher says since she attended, she has been interviewing for other board roles. “The program helped me to prepare better for those interviews and be able to articulate my experience and the value that I could bring to a board. The fact that it is an all-women program changes the dynamics in a really positive way, and sessions on developing your brand and marketing yourself in particular were really helpful. The opportunity to engage with speakers and with other members of the cohort was also important.”

The Power of Diversity

Kelliher’s experiences on the boards of the National Safety Council and the University of Southern California Marshall School’s Center for Effective Organizations have shown her the power of diversity and the downsides of a more homogenous board. “Boards have to be very careful of having clarity on what their needs are and what gaps they need to fill. There's a whole range of work, so it’s not just about having a lot of CEOs and CFOs on a board.”

“The perspectives and diverse experiences of other C-suite functions are really helpful,” Kelliher continues. “We have a board member who brings a lot of experience in regulatory and legal issues, which is a critical need on our board. And we currently have one board member who is not American, and his perspective has been invaluable. Even in areas where this board member has limited knowledge, it is a plus to get questioned about things that we take for granted as ‘just the way it’s always been done.’ Diversity of every ilk is critically important for developing a quality board.”