Why Advisory Boards Fail: Lack of Diversity
A company’s advisory board plays a critical role in strategic planning and structure and can help the business to prepare for sale. A successful, diverse board prepares the organization to go to market using different perspectives. An ineffective, non-diverse board can only give one perspective and that is of the majority party. There are several reasons advisory boards fail, and one of them is a lack of diversity. Advisory boards that lack diversity in terms of expertise, background, and perspectives may not be able to provide the level of insight and guidance needed for effective decision-making.
Why is there a lack of diversity on advisory boards? Statistics on advisory boards are difficult to find, but for this article, I will extrapolate the statistics on a board of directors to include advisory boards as a subset.
These are the top five causes due to a lack of diversity that I identified:
1. Gender imbalance: A board comprising primarily men or women may lack diverse perspectives and experiences.
According to a report by Deloitte, women are underrepresented on corporate boards and in C-suite positions. In 2020, women held only 22.6% of all S&P 500 board seats, and only 6% of S&P 500 companies had a female CEO. In terms of advisory boards specifically, data is harder to come by. However, a study by EY found that women held only 20% of positions on corporate boards in 2019, which could potentially include advisory board positions. It’s important to note that these statistics vary widely by country and industry, but overall, women are still significantly underrepresented in leadership positions.
I’ve sat on all-women advisory boards, and the dynamic is friendlier, welcoming, and geared towards helping each other, making it effective. Of course, as with women, a little cattiness is there, but not overwhelming. On the advisory boards that included men, what I remember most is the amount of cussing that took place. Women were quiet, asked to take minutes, and overspeaking happened. Women who dared to speak up and speak out were labeled “loudmouth, ” “difficult to deal with,” “overbearing,” and other similar negative words.
That’s why organizations like 50/50 Women on Boards™ are working hard to change the narrative regarding the gender imbalance on boards. They are the leading global education and advocacy campaign driving the movement toward gender balance and diversity on corporate boards. Their GDI: Fourth Quarter Findings Report states, “As of Dec. 31, 2022, women held 28.4% of the corporate board seats on the Russell 3000. This is only a 0.2 percentage point increase from the previous quarter, and a 1.7 percentage point increase from Dec. 31, 2021.”
Having a paid advisory board seat can be lucrative to members. However, men get a higher fee on the same board than women. The difference is over $13,000. This disparity hurts our families and our pocketbooks.
2. Racial or ethnic homogeneity: If a board lacks members from diverse racial or ethnic backgrounds, it may fail to incorporate different cultural perspectives and experiences.
One automatically thinks about race when asked if you have a diverse board. Why? Because that’s the most visible form of diversity, of seeing how someone is different from you. You can identify it from afar. When a woman of diverse origins walks into a room, she scans the room to see if there are others like her. I still do it – it’s automatic.
According to recent studies and reports, the diversity on boards of companies varies greatly. An Equilar study states, “only 10 Percent of S&P 500 Companies Explicitly Identify Directors’ Race and Ethnicity.” While some companies have made significant strides in increasing racial and gender diversity on their boards, others have not. In general, women and minority groups are underrepresented on corporate boards, with only a tiny percentage of board seats held by women and people of color. However, efforts are being made to increase diversity at the board level, including initiatives like the Board Challenge and the Board Diversity Action Alliance.
When the corporate Board of Directors becomes diverse, it will trickle down to the advisory board level.
3. Age bias: If a board has an age bias and only includes members from one generation, it may struggle to understand and address issues relevant to other age groups.
Like a board of directors, most advisory board members are old white men and women with advanced degrees.
The age breakout of an average advisory board can vary depending on the industry, company, and specific advisory board in question. However, it is common for advisory board members to be experienced professionals who have reached the later stages of their careers. This often means that members of an advisory board may be in their 50s, 60s, or 70s. However, there may also be younger members who have achieved significant success in their field at an early age. Ultimately, the age breakout of an advisory board will depend on the goals and needs of the organization forming the board.
Tech company boards tend to skew a little younger because of the industry. Advisory boards in these companies have particular skills like being an investor and getting some equity. In return for funding, they negotiate a board seat.
It is incumbent on the older board members to start recruiting and training younger, up-and-coming entrepreneurs and executives to replace them. Training could be the most extraordinary form of giving back.
4. Professional background: If a board consists of members with similar professional backgrounds, it may struggle to bring diverse expertise to discussions and decision-making.
Business owners demand certain professions to be on their advisory boards – lawyers, accountants, doctors, marketing, and sales are always in high demand. Do not have a board of all lawyers or all accountants; ensure your board is diverse professionally. It’s easy to wind up with a board of the same professionals if members recommend people they know.
My advisory board mimicked the needs we had at the moment. If we needed help with Human Resources, we recruited an HR specialist. Rotating members out of service based on needed skills helps to keep your board diverse.
5. Geographic diversity: If an advisory board’s members are from the same region or city, it may lack a broader understanding of issues impacting other areas.
It’s not just non-profits that have this problem because they are usually backing a local cause in their area – small businesses do as well. However, if a company or non-profit supports a diverse community, your board should reflect the communities that they serve. Diversity can mean younger participants, people with disabilities, and not just having one black person. What about all other ethnicities? In the 2019 issue of Illinois Times, Dr. Wesley McNeese of the Southern Illinois University School of Medicine, who is working with the expanding boards, knows this. “The lack of racial board diversity is stark in this community, largely because boards are not trying to accomplish it….Boards of organizations are operating for and among underrepresented groups, such as African-Americans, [Latinxs], Native American Indians, Alaskan Natives, and Pacific Islanders, without having valid input from those groups.”
Additionally, some advisory boards, particularly paid ones, have a limit as to the number of members. That means if your board is at capacity, bringing in a new person means voting off someone. This is seen as taking money from the mouths of the older white men who usually sit on boards. If that person is your financial beneficiary, it makes it even more difficult.
Having a diverse board expands the circle of influence. They are bringing outside perspectives, introducing the company to new people, and, if funding is required, it raises the stake in the number of investors who can participate in the business.
Overall, power and control issues must be addressed by organizations if they genuinely want to diversify their boards. Put people first. Boards should be doing what is best for the establishment, not what is best for the individual board member or owner. Organizations must be willing to throw down the gauntlet to upset the current advisory board members who are content with their power.