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Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Kenan Insight
Apr 27, 2022

Strategies for Diversifying Corporate Leadership

California has been at the forefront of diversifying corporate boards through policy mandates in the United States. First, in 2018, the state passed a law requiring that at least one woman sit on the board of any publicly traded company with headquarters in the state. Then, in 2020, California adopted a new bill requiring publicly traded companies based in the state to include board members from underrepresented communities, including racial and ethnic minorities and those who identify as LGBTQ+. In a blow to the state’s efforts, a California state judge recently ruled the latter law unconstitutional.

In recent years, corporate diversity has been an important discussion point in the larger conversation around social justice and equity. Corporate leaders and policymakers alike are taking aim at the status quo and seeking ways to not only diversify the workplace but also ensure access to top leadership positions for historically underrepresented groups. As seen with the California law, however, progress toward greater corporate leadership diversity has encountered roadblocks.

We asked two of our experts to share their thoughts regarding long-standing systemic issues that continually challenge the progression of corporate diversity efforts and effective strategies for increased corporate leadership diversity.

Tell us how you and your research approach the study of corporate diversity?

Elad Sherf: I am an organizational psychologist, which means I study the causes and consequences of attitudes and behaviors at work. My research is focused on fairness at work and, when it comes to DEI, the perceived fairness of attempts to enhance representational diversity and to improve the lived experiences of marginalized and underrepresented groups. My research examines individuals and how they react to decisions and polices related to diversity, which can help understand who and why supports or resists rules like the one that was just struck down in California.

Elena Simintzi: My approach has always been to follow a transparent and objective scientific method to analyze the data and make statistical inferences. Although I do empirical work, I have always used economic theory to guide the empirical analysis and deliver the economic intuition of the results. My research approach is no different when I study the important topic of corporate diversity. I always adhere to the key principle that research should be objective and guided by the fundamental economic principles.

Also, my research is motivated by policy-relevant questions; my interest in topics related to corporate diversity is no exception. I hope my results can inform the debate and steer policy to achieve its objectives for all stakeholders involved.

Based on that research, what are one or two factors that you think are holding back corporate America from pushing the needle forward on more diverse representation in corporate leadership positions?

Elena Simintzi: Let me start by saying that progress has been made, and we need to also recognize that. And let me clarify I am referring here to gender corporate diversity since this is what my research focuses on. For example, according to data from Equilar, female representation of corporate boards has increased by roughly 10 percentage points during the period 2016 through the second quarter of 2021, and now a quarter of board directors in Russell 3000 firms are women. But, of course, this is still a small fraction, especially considering that 43% of full-time workers are women in the U.S. (Bureau of Labor Statistics, 2020).

How do we accelerate change? I think it is key to get qualified women on corporate networks. There is a large supply of highly qualified women in the labor market who are not necessarily part of the pool of candidates known by firms. Since searching for the right candidate outside of the known pool of candidates can be costly, some firms refrain from doing so. Institutional investors, universities, and of course existing corporate leadership should work in tandem to broaden the pool of diverse candidates available to firms to hire. Second, we need to realize that a top-down approach may not be enough. Change needs to be broader. It should start from the pre-K level. According to BLS data, in 2019 only 27% of STEM workers were women and only 15% of engineers were women. The role of education from the early formative years plays a major role and can bring deep and necessary change.

Elad Sherf: The answer differs if we consider those who agree with the premise that greater representation is right (morally, socially, and economically) but struggle with implementation versus those who oppose any efforts based on ideology.

For the former group, I think many well-intentioned executives would like to push for greater representation but struggle using existing systems to produce different outcomes. This is where you hear complaints about pipelines and lack of diverse talent. These complaints make sense in a world in which we use the systems that caused the disparities but expect different outcomes with only small adjustments (i.e., look for candidates in same places, rely on existing criteria to evaluate candidates, and offer similar working conditions and demands). Instead, enhancing diversity requires reinventing recruitment into leadership positions and challenging assumptions. For example, recent experiments suggest that moving from an opt-in process to be considered for a position (i.e., needing to apply) to an opt-out option (i.e., everybody who meets certain criteria is automatically considered) decreases gender differences in promotions. My point is not that this is the solution. There are no silver bullets. Instead, it suggests the need to creatively challenge assumptions and systems to reduce the unique barriers underrepresented groups face. For the latter group, the question is tougher. Resistance often boils down to endorsement of a merit ideology. Merit as an idea is valid and useful. But it doesn’t always represent the reality people experience. Belief in meritocracy leads to an assumption that any attempt to increase representation would sacrifice “quality” and thus amounts to unequal treatment of otherwise equal people (e.g., hiring women just because of their gender). This is a pervasive but false assumption. Addressing such ideological resistance requires a long-term, respectful active dialogue. Organizations can start by better using data to challenge assumptions about increased representation and lower quality and making such data transparent. Moreover, organizations can devote efforts to uncovering invisible and subtle barriers faced by those from underrepresented groups, as well as hidden and subtle advantages benefiting majority members. This can help change the narrative from one where gender, ethnicity, and sexual orientation are seen as irrelevant for decisions related to work (which, in a “vacuum,” they are) to one in which people not belonging to the majority group often must put in “twice the work” to achieve the same level of performance and thus their capabilities are often misrepresented using existing criteria.

Do you think there is a role for policy mandates that encourage greater diversity within corporate leadership roles? Why or why not?

Elad Sherf: In a perfect world, absolutely not. But we do not live in a perfect world. Mandates can increase representation. We must, however, recognize that 1) strict rules can’t, by their nature, consider the nuance in situations and circumstances across companies and industries and 2) outcome mandates can legitimatize minimum requirements, thus indirectly enshrining disparities (e.g., “twokenism”). I think more sophistication is needed in regulation rather than a binary “Should we use mandates?”

Two broad recommendations come to mind. First, consider mandating the process rather than the outcome. For example, rather than mandating board representation, legislation could focus on greater process goals and transparency. Imagine if companies had to set clear criteria for a position in advance and then show evidence that the list of candidates they considered who met these criteria was long and diverse. Such a process has at least three advantages:

  • Setting criteria in advance tends to reduce bias as it makes it harder to re-weight criteria post hoc to favor certain candidates.
  • This process reduces the association between outcome and representation (i.e., this person was chosen because of their demographic characteristics), the reason why those resisting such policies react negatively to them.
  • Companies could no longer rely on informal and narrow networks and thus must invest, in advance, in developing diverse talent, connections, and networks (in line with Elena’s suggestion). Put differently, a process mandate may be better in addressing the core causes of lack of diversity boards.

Second, I agree with the University of Chicago’s John List that policies represent field experiments, and huge ones at that. Hence, I would like to see policies treated as experiments, with clear criteria and mandates to collect data, explore it, and adapt implementation quickly based on results. For example, could legislation include an expiration date (i.e., sunshine legislation) such that it is automatically becomes more or less strict (or even expires) if certain standards or pre-agreed thresholds of efficacy are met? Could policies involve a host negative and positive “strong” and “soft” incentives (not all have to be monetary) for different tiers of representation that come into effect at different times and tiers of companies, allowing for natural experiments that enable exploring cause and effect?

Elena Simintzi: Policy mandates can certainly help, but they may also have unintended consequences and so the answer depends on what the mandate is about. For example, in my research I find strong evidence that transparency rules that ask firms to report gender disaggregated wage statistics successfully narrow the gender pay gap but also result in more women being hired and promoted in the affected organizations. In new research, I also find that government subsidized child care increases new mothers’ reallocation of careers into more demanding jobs, leading to higher earnings and productivity. Firms in traditionally male-dominated industries seem to benefit from such reallocation. On the other hand, although mandated quotas seem to increase the representation of women on corporate boards, they have been also associated with costs to shareholders and minimal impact for other women working for quota-affected firms or for young women who choose what career path to pursue.

What can corporate stakeholders do to more effectively diversify their leadership and then retain that talent?

Elena Simintzi: A lot of change is and can be generated endogenously in organizations. There is clear evidence that campaigns by institutional investors to increase diversity on corporate boards have been incredibly successful. Also, building the right culture is important. Think that corporate leadership roles can be very demanding with long hours and inflexible work schedules, which can be especially taxing for women who have children. Firms need to take this seriously and make sure that they have the right culture that can help attract the right talent into senior roles. In recent work, we show that compensation to attract and retain high-skill women to firms is not only about wages; it is also about generous nonwage amenities such as maternity leave policies that support women and can help them succeed both in the workplace and as parents.

Elad Sherf: When companies take diversity and inclusion goals seriously, they can make impressive advances. And by seriously, I mean treat decisions about diversity like other organizational decisions (with metrics, accountability, and salience in terms of managerial attention). Obviously, getting people through the door is not as easy as ensuring a positive experience. Attention needs to focus both on those who join (to support their ability to highlight their unique contributions while feeling like they belong) and those who are already there (challenging their assumptions about how they communicate and interact with others).

When I teach team leadership, I tell my students that we can’t expect diverse teams to work well if we don’t manage how they interact. There is a reason why people tend to cluster with similar others. It is easier to communicate and to feel understood.

When new members join a team, it provides a great opportunity to shake things up, change how work is done, and create new norms with which everybody feels comfortable. If everybody must learn from scratch, newcomers are less likely to feel like outsiders and can have a voice in establishing the new norms. If people are involved in creating norms, they are more likely to build norms they feel comfortable with and be committed to them. So, my advice would be to question every explicit and implicit interaction within your team. This starts from the smallest decisions (What snacks are in the meeting? Is everybody sitting in same chair in the room? Do we have to meet in this room?) to explicit consideration of who gets to speak and how people react to them (Does everybody get opportunities to participate? Are reactions to everybody’s ideas similar? Can people share concerns in private and public?), all the way to how resources (nonmonetary such as managerial time or challenging assignments to monetary such as bonuses and stock options) are allocated. The answers likely differ in each organization, but aiming to ensure involvement and inclusion in every interaction is a good place to start.

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