The Board of Directors of the Company is Too White, Too Male – And Too Old. Here are 4 ways to fix that

A few months after I graduated from Stanford business school in 2013, Theranos was creating buzz on campus — and not all of it for good.

One evening, I found myself engaging in a dinner party conversation with a group of some of the university’s brightest scientific minds. When the talk comes to the mostly unknown health tech startup there is raised nearly 100 million dollars venture capital since received started on campus a decade earlier, this group of graduate students and postdocs — from fields like bioengineering and microbiology — beat the company, despite its apparent success.
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Some of them know Theranos and its group very well. Others are only familiar with the company’s products. They are all very suspicious. One by one, they took turns lamenting what they saw as the absurdity of the technology Theranos was promising.

I only heard of Theranos because of its board of directors, at the time of inclusion a retired four-star general, at least one former Fortune 500 CEO, and a former United States Senator, among others. I marveled at the star-studded list of political and business giants but also curious about what these people know about blood testing. As we will all learn years later, they don’t know enough.

As the jury weighed in on the fraudulent trial of Elizabeth Holmes, the founder of Theranos, too little attention was paid to the failure of Theranos’ board and the lessons to be drawn from it. As more capital flows into private companies that are not subject to mainstream public scrutiny and are under increasing pressure to support high valuations, there will be more Theranose. In this new era of nefarious business, they will be less likely to engage in accounting tricks and more likely to exaggerate the promise of their “disruptive” technology, exaggerating the their development or misuse of customer data. What hasn’t changed is that their board of directors will be the first line of defense.

But corporate American boards have not evolved much since the 20th century. Too white and too male, they are being coerced by social pressure and management duties to recruit more women and people of color. These billboards are also outdated and out of touch, rife with capable men of the industrial age who despise their CEOs and are ill-equipped for the digital age. Among companies in the S&P 500, the average director is 63 years old and tends to be older, according to Research from The Conference Board.

Too many corporate directors today lack the relevant experience to meaningfully monitor executive teams, spot early signs of overreach, or manage their companies through business challenges. Upcoming. More racial and gender diversity is a good start, but it’s not enough. The councils of the future also need to become younger, more independent and better skilled in emerging areas, such as cybersecurity, artificial intelligence and automation. The best way to do this is for institutional investors, regulators and banks to band together to influence boards to demand four things:

Be transparent about board composition

Boards of publicly traded companies are more revealing than ever. In 2021, 59% of S&P 500 companies reveal racial composition their boards, up from 24% in 2020. Private company boards should provide more comprehensive demographic information. As an early-stage investor in dozens of startups, I encourage the companies I’ve invested in to measure and manage board composition across metrics that don’t just include race and gender. characteristics but also age, skills, expertise, management style, political ideology, and geography. Quantifying this information is the first step to understanding how board demographics can make it vulnerable to blind spots, and disclosing this information will allow for better accountability.

Post publicly open the board

Right now, board recruitment happens entirely behind closed doors. Companies fill the gaps through their existing networks or seek executive firms, reinforcing board uniformity. Instead, companies should be more transparent about when they are recruiting for the board seats. The easiest way to do that is to publicly advertise loopholes as they arise. In fact, not to do so is intentionally excluded. Public listings open the pipeline to candidates outside of the organization’s existing network.

Looking for more independent directors

The fastest way to improve board composition is to increase the proportion of independent board members who do not have a pre-existing relationship with the company. Research shows that more independent directors correlated with more transparency and more independent boards of directors less involved in corporate misconduct. When independent directors have relevant expertise in the industry, having more directors among them is relevant. increase income transparency and improve returns on acquisitions. In recent years, independent directors tend to be younger. Generally 16% of new independent S&P 500 directors in 2021 are under age 50, compared with just 10% across all directors, according to executive search and consulting firm Spencer Stuart. While both the NYSE and Nasdaq require a majority of the board members of a listed company to be independent, there is no such requirement for a private company board, where only 25% of board members are independent.

Create age-related interview quotas

Companies should implement age-related interview quotas for new board seats. Similar to the NFL’s Rooney Rule, requires NFL teams to interview at least two candidates from underrepresented groups For certain coaching and executive roles, companies should ask management to interview candidates whose age is currently underrepresented. In one 2017 survey from PwC, age is the highest rated diversity criterion among board members today, with more than 90% saying it is “very” or “slightly” important. Rooney rules focus on the board not new, but adding age as the diversity criterion would obviously be.

In a world where Reddit themes can make or break one stock, every company susceptible to ransomwareand diversity is a widely accepted asset, company directors need to have the technology savvy, the ability to challenge the traditional orthodoxy of the company, and an intuitive knowledge of the market that they are serving. Increased disclosure, more transparency, increased independence and being younger are the best ways to make that happen. The Board of Directors of the Company is Too White, Too Male – And Too Old. Here are 4 ways to fix that

Aila Slisco

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