Board Monitor US 2020

Proven expertise and increased diversity were top priorities for Fortune 500 boards as they nominated new directors to help meet growing responsibilities and new challenges, and these boards will need more of both to succeed in 2020.

In 2019, boards were facing a range of competing expectations for the new members they would add to meet their ever-growing remit. Modern boards are expected to possess significant expertise in areas as specialized and diverse as digital transformation, cybersecurity, corporate reputation management, sustainability, and social media, to name just a few, and also include diversity in terms of gender, racial and ethnic background, age, and national origin, among other characteristics.

In addition to the benefits gained from board members with specific expertise, it’s also widely accepted that more diverse teams make better decisions. That benefit of diversity is particularly important to companies now and should be further motivation for them to invest in sustained efforts to increase diversity and inclusion.

Most corporate boards in the 15 countries we study¹ made some progress in adding new members with diverse backgrounds and skills: from different countries and regions, functions, age groups, ethnicities, and genders. For example, nearly half, or 44%, of non-executive director appointments in the United States last year were women, the highest proportion since we began tracking board appointments 11 years ago. People of color also have made some progress on boards in the United States—with appointments increasing from 13% in 2010 to 23% in 2019—although the rate of change has been notably slow, taking 9 years to increase by only 10 percentage points. Given the recent increased focus on racial injustice and social inequality around the world, many leaders are reconsidering their diversity and inclusion efforts, including on boards. Most are finding they can do much better in building representation internally and in supporting Black communities as well as other communities of color, both internally and externally.

Most boards around the world also continued to add a number of more traditional directors. This includes people with prior board experience—72% of appointments in the United States—and prior experience as a CEO or CFO.

Though such directors don’t as often add diversity in other areas, their experience has been particularly valued by nominating committees when companies face significant enterprise risk. Indeed, among the characteristics of new directors we have been tracking, we note a few trends among new directors globally, which are somewhat at odds with each other.

Some progress on diversity

• Women continue to make significant gains among newly added directors compared to previous years.
• Racial or ethnic, nationality, and age diversity improvements have been disappointing, with little progress to report anywhere in the world.
• Functional experience on boards has increased, with a corresponding decrease in CEO experience. In particular, digital expertise, now essentially a given on boards, trended highest. With sustainability and cybersecurity rising as central concerns for companies and financial risk remaining a critical priority, boards also focused on adding experience in these areas.

A continuing preference for traditional experience

• First-time directors are still not as common as experienced ones, despite boards’ stated focus on increasing diversity.
• Financial expertise and experience in financial services sectors remained highly sought-after backgrounds.
• Though the proportion of directors with CEO experience has continued to decline annually, it remains the most common type of prior expertise, followed by CFO experience.

As companies reshape themselves in the new environment 2020 is presenting, there will be many new opportunities for those who want to be best positioned for accelerated performance. In part, that means building the most capable board tailored to each company’s unique strategy.

Of course, simply ensuring a board has an appropriate mix of perspectives is just the start. To be highly effective, a board must be clear on its purpose and have a culture and processes that ensure directors can work well together. We’ve seen many boards in which directors don’t work well together, and with the added pressure from economic and societal volatility, these fractures present more risk for boards than ever before.

The solution is inclusion broadly defined. Many boards think of inclusion particularly in relation to their significant efforts to add diversity. But today, boards will benefit most from ensuring that every member is able to contribute fully, regardless of the board’s traditional norms or habits, varying personalities, inherent biases, or for any other reason. (For more on Heidrick & Struggles’ thinking on board dynamics, see Future-Proofing Your Board.)

In this report, you’ll find the data and our observations on the 2019 class of directors at Fortune 500 companies.

Acknowledgments

Thanks to the following Heidrick & Struggles colleagues for their contributions to this article: Lee Hanson and Catherine Lepard.

Reference

¹ Australia, Belgium, Brazil, Canada, France, Germany, Hong Kong, Ireland, Netherlands, New Zealand, Portugal, United Kingdom, United States, Singapore, and Spain are included in our studies of boards.