For More Diverse Corporate Boards, Move Down the Org Chart

(Bloomberg Businessweek) -- Outside corporate board gigs are a classic perk of being a chief executive officer. The side jobs offer extra pay, as well as a way to network—perhaps for the next big job. But all those top bosses filling up directors’ seats has a predictable effect. Since CEOs are an overwhelmingly white, male bunch, they tend to reinforce the lack of diversity on corporate boards.

That makes a push by Marriott International Inc. to get lower-level executives to join boards a bigger deal than it might seem. CEO Arne Sorenson says his aim is to give the hotel company’s rising stars valuable experience. Incidentally, though, of the five who have found board positions, three are women and one is a black man. The same trend is showing up at other large U.S. companies. Among the 10 companies with the most employees serving on other boards, the executives with directorships are overwhelmingly women or people of color, according to data compiled by Bloomberg.

There’s a long way to go before boards become genuinely diverse. Goldman Sachs Group Inc. made news in January when it announced it would no longer underwrite initial public offerings for U.S. and European companies without at least one director who is a woman or a person from an underrepresented group. Although women make up half the workforce, they didn’t exceed a quarter of S&P 500 directors until just last year.

For the first time, a majority of new directors last year were either women or men of color. Boards are casting a wider net, in part, as a response to pressure from investors such as BlackRock Inc. and State Street Global Advisors, which cite better returns for more diverse companies. For different reasons—such as the drain on CEOs’ time and energy—big investors have also been pushing companies to rein in their CEOs’ outside board service. A decade ago, half the CEOs in the S&P 500 served on at least one outside board, and many were on at least two. Last year, almost 60% weren’t on even one outside board.

Sorensen was one of the first Marriott executives to serve on an outside board. He’s currently a director at Microsoft Corp. He felt it made sense to encourage other executives to get similar experience: Board service could expose them to industries they need to stay in touch with, including technology. Chief Financial Officer Kathleen Oberg joined the board of software company Adobe Inc. in January 2019. Others went to businesses closer to Marriott’s consumer focus. Stephanie Linnartz, a group president in charge of consumer strategy, has been a Home Depot Inc. director since May 2018. “The human touch is very similar between our two companies,” she says. “I think I’ve been able to bring back some best practices from Home Depot, and vice versa.”

Most companies are willing to let key executives serve on one board, but usually that’s the limit, says Julie Daum, who leads the North American board recruiting practice at executive search firm Spencer Stuart. And companies want to avoid situations that might carry a reputational risk. “They don’t just say you can go out and serve on any board,” she says. Because of those risks—and long hours—some companies still won’t entertain the possibility of their executives moonlighting as directors, says Lisa Blais, who leads U.S. board recruiting for Egon Zehnder in Boston.

But outside board service is a tool companies use both to groom future CEO candidates and to retain executives for whom a promotion is not yet available, says James Drury, whose executive recruiting company specializes in helping companies find boards for their executives to serve on. A board role can be lucrative: The average total compensation for an S&P 500 director passed $300,000 this year for the first time, according to Spencer Stuart. For companies seeking to fill boards, going down a rung or two from the CEO has its own advantages. Such people may bring more specific skills, such as in human resources, says Blais.

While the effort at Marriott doesn’t have a diversity goal, executives who are not white men benefit more because they are in demand, Sorensen says. Meanwhile, the willingness of companies to let their non-CEO executives join boards means that many directors are joining a board for the first time. “If they don’t give us a first shot at it, it’s never going to change,” says Linnartz. “I’m definitely trying to pay it forward to other women.” —With Bloomberg Global Data’s James Calixto

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net

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