This article was originally published on NYSE | By Erin Essenmacher, Board Member and Senior Advisor, and Rochelle Campbell, Chief Executive Officer
Building a balanced board: expanding the reach and pipeline for talent
Introduction
Corporate governance has undergone a significant transformation over the past decade. Boards face twin challenges of an increasingly complex operating environment and heightened scrutiny from a host of stakeholders, which are forcing an evolution in what it means to faithfully execute fiduciary duties. As directors sharpen their focus on strategy oversight and contend with a shifting risk landscape, they must also rethink their approach to board refreshment. Companies across the globe are recognizing that board diversity is a critical driver of innovation, better decision-making and long-term business success. A 2014 study from the Credit Suisse Institute found that companies with more women on the board tend to have higher returns on equity, better stock performance and higher dividend payouts. Invest Ahead, an investor-led effort to ensure greater board diversity, has created a database of the past 5 years of peer-reviewed, academic research, many of which draw a connection between board diversity and positive impact on the company. Perhaps the most compelling case for creating a more diverse board comes from the investors themselves. Large institutional shareholders including BlackRock, State Street Global Advisors and the California Public Employees Retirement System who represent a combined total of $14 trillion of assets under management, have all made public statements voicing their belief that diverse boards are more effective boards. Many other institutional investors, such as pension funds and endowments, are now actively advocating for board diversity and are using their influence to pressure companies to increase diversity on their boards. Answering this call requires a focused and deliberate approach to expanding the reach and pipeline for talent.
A shift in board oversight
Historically, the board’s role was heavily focused on compliance and financial oversight. However, the advent of disruptive technologies, geopolitical shifts and evolving consumer expectations has compelled boards to adopt a more expanded approach to include a stronger focus on strategy and widening the lens on the kinds of risks that could harm the company. In addition, there is increasing recognition that centering people and culture is not just a “nice to have,” but critical to protecting and building business value.
In Alan Murray’s 2023 book, “Tomorrow’s Capitalist: My Search for the Soul of Capitalism,” he surfaces a statistic that underpins this shift: a look at the balance sheet of Fortune 500 companies 50 years ago would reveal that over 80% of the value came from physical entities like oil in the ground and inventory on the shelves. Today more than 85% is tied to intangible assets like intellectual property, software, company reputation and brand equity. This shift demands that boards can assess both strategic opportunities and potential risks through the lens of talent, organizational culture and innovation.
Building an effective board requires a balanced approach:
■ Expanding the lens of the idea of who makes a good member.
■ Determining which skills, backgrounds, experience and perspectives are important for a given industry, business model, risk profile, stage of growth and strategy.
■ Sourcing talent that fits that profile.
The first two are critical in order to do the third. We will examine each in more detail, as well as discuss how and why companies should play an active role in helping to deepen the pipeline for board talent by starting with their own ranks.
Expanding the lens on the ideal board member
One of the key roles of the board is to provide an outsider, higher-level perspective of the company, industry, operating environment and market conditions. As both advisors and fiduciaries, they play a crucial role in pushing the leadership team to consider a wider perspective of issues when making decisions.
When boards are homogeneous, it can create blind spots, making this harder to do effectively. Lack of diversity can lead to groupthink, where decision-making becomes skewed, and both risks and opportunities for innovation are missed.
A balanced board consists of individuals from diverse backgrounds, including gender, race, ethnicity, professional experience, lived experience and cognitive diversity. This, in turn, brings a mix of perspectives, enhancing the board’s ability to understand and respond to different challenges, opportunities and market conditions.
A company’s employees, customer base and other key stakeholder groups are likely diverse. The more the board can reflect and represent this, the better able they will be to identify both issues and opportunities early on, ask questions of the leadership team to help surface key considerations and bring them into the discussion.
When considering board diversity, there are several key factors to consider.
Generally speaking, board diversity centers around several key areas:
■ Gender: ensuring gender parity on boards.
■ Ethnicity: including individuals from diverse ethnic backgrounds.
■ Age: balancing experienced directors with fresh perspectives.
■ Geography: representing different regions and cultures.
■ Functional expertise: incorporating a mix of industry, domain, and technical expertise.
Identifying and sourcing the right candidates for a given board starts with re-examining old—and possibly outdated—assumptions about who makes a “good” board member.
Many board positions have traditionally been filled by individuals with decades of experience in executive leadership roles, especially those who are sitting or former chief executive officers (CEOs). While experience in the top job can be a plus, there is growing recognition that a board made up of mostly former CEOs does not provide adequate diversity of perspective, especially when it comes to things like digital transformation, voice of the customer and geopolitical considerations.
A non-traditional candidate who may not have held a CEO position but has deep expertise in areas such as technology, sustainability, strategy, operations, marketing or finance can bring valuable insights to the boardroom.
For example:
- Someone with expertise in data analytics or artificial intelligence could offer a fresh perspective on the strategic direction of a company in the tech-driven age.
- Individuals with backgrounds in social responsibility and environmental sustainability could guide companies in aligning with broader societal goals.
- Those with backgrounds in people and culture can raise important questions about how the people strategy aligns with the broader business strategy — a critical factor given the shift in corporate value from tangible to intangible assets.
Here are several factors to consider that can broaden the pool for qualified board talent:
■ Look beyond the C-suite, focus on impact: individuals from lower levels of the organizational hierarchy who have demonstrated leadership and experience that mirror the challenges the board must grapple with. Prospective candidates who have led through unique challenges like mergers, acquisitions, financial turnaround, supply chain issues, or reputational crisis have likely developed the business acumen needed to succeed in the boardroom. Consider those with strong track records in operational excellence, cost efficiency, high employee engagement, or strong culture scores.
■ Digital natives: those with deep understanding of emerging technologies and their impact on business models. According to the 2024 U.S. Spencer Stuart Board Index, 29% of next-gen directors appointed in the past year have a technology background, up from 14% the prior year.
■ Younger and first-time directors: younger leaders bring fresh thinking that is less tied to the status quo. The same Spencer Stuart study found 14% of the 2024 incoming directors are aged 50 or under, up from 11% in 2023 (though down from 18% in 2022). While prior board experience is valuable, it can be a barrier to finding fresh skill sets. Nonprofit and advisory board service can provide useful preparation for corporate board roles.
■ Global citizens: as businesses expand globally, understanding cultural nuances and international dynamics is key. Recruiting from different countries and regions can provide insights into emerging trends, geopolitical issues, and consumer behaviors.
■ The importance of EQ, decision-making, and asking the right questions: beyond technical expertise, effective board members have strong emotional intelligence, critical thinking, and curiosity. They build consensus, challenge the status quo, and maintain a learner’s mindset to foster innovation and growth.
Mapping board composition to strategy
From taxis and hotels to movie studios and large retailers, there is no shortage of cautionary tales featuring companies that did not anticipate the way that technology and changing consumer behavior would transform entire industries, creating new competitors and rendering certain business models obsolete.
To effectively navigate the complexities of the modern business environment, boards must align their composition with the organization’s strategic objectives. The board must consider not only the way the company makes money today, but also where the market is going and how that might impact the business model 2, 5 or 10 years into the future. This involves identifying the specific skills, experiences and perspectives needed to provide guidance and oversight of both current and future challenges.
The board should conduct a thorough assessment of its current composition and identify skills gaps and areas where additional experience or expertise are needed. The more thought and intention that go into developing a candidate profile, the better the odds that the board will source diverse talent and find the best candidate for the job.
When sourcing prospective board members, it is important to look for T-shaped leaders. While subject matter and industry expertise are important, they must be grounded in a more holistic understanding of business strategy and operations. Think of a letter “T” — if the vertical line represents deep, focused expertise, the horizontal line across the top represents the ability to look across the business and understand how various drivers of strategy and risk in one business affect the others. In other words: business acumen.
At the same time, it is important to avoid loading up on requirements such that you create unrealistic expectations that filter out valuable talent. Overly narrow profiles, such as requiring candidates to have a specific combination of executive roles, industry experience, educational background or geographic ties, can unintentionally exclude highly capable individuals who could bring new skills, fresh perspectives and innovative approaches to the boardroom.
Striking a balance between defining necessary qualifications and maintaining an open mind allows boards to consider a broader, more diverse candidate pool that brings a powerful new perspective. Ultimately, a focus on essential qualities sourced with intention — such as strategic thinking, demonstrated leadership impact and alignment with the company’s mission — can build a board that is both effective and inclusive.
Expanding the reach: sourcing the right talent
To build a balanced board, it is essential to expand the reach for talent beyond the traditional sources. Historically, many boards have been composed of individuals from similar educational backgrounds, industries and networks. Broadening the pool from which board members are selected is key to increasing diversity and ensuring that different perspectives are brought to the table.
To identify and attract top-tier board talent, organizations must adopt a proactive and strategic approach. There are several strategies that can help to broaden and deepen a slate of qualified board members:
■ Proactively seek a diverse talent pool: one of the first steps in expanding the reach for talent is intentionally seeking candidates who bring different demographics to the board. This can include women, people of color, members of the LGBTQ+ community, individuals with disabilities and professionals with diverse international backgrounds. Companies can leverage partnerships with diversity-focused organizations, such as women’s leadership groups or minority business associations, to identify potential candidates. Networking within these communities, as well as using specialized executive search firms that focus on diversity, can spotlight talent that might otherwise remain overlooked. Furthermore, creating a formal program to mentor and develop diverse leaders within the organization can serve as a valuable pipeline for future board positions.
■ Leverage networks: to identify potential board candidates, tap into professional organizations, executive search firms, and alumni networks. LinkedIn is another powerful tool for discovering new talent. Using keyword searches, you can efficiently identify emerging or lesser-known professionals who align with your candidate profile. The platform also provides insights into how board members may be connected with potential candidates, making it easier to both source and vet prospective board members.
■ Expanding the search: cast a wider net to include individuals from a wider range of backgrounds, including those outside traditional executive roles. There are several wonderful groups in the US that not only train and support highly qualified, diverse board talent and help them to board opportunities. Consider tapping these or similar organizations to create a ready-made slate of diverse candidates with skills that fit their desired profile.
■ Working with search firms: there are dozens of reputable search firms from multinational to smaller boutique shops, that are highly effective and specialize in placing board talent. Enlisting the support of these professionals can greatly enhance efforts to diversify a board by providing access to broad networks and specialized expertise in diversity recruitment. These firms tap into databases and relationships that reach underrepresented groups, while offering tailored strategies aligned with an organization’s talent strategy. Their external perspective helps overcome unconscious biases and ensures candidates’ skills match the board’s needs. Additionally, search firms streamline the process by pre-vetting candidates and offering curated options, saving time and effort. Their credibility can also attract high-caliber talent, making them valuable partners in building a diverse and effective board.
■ Support new board members in the role: there has been a lot of focus on finding and recruiting new board members, but getting the benefits of a diverse board does not work if those new directors are not set up for success. Every board is different with its own culture, personalities, policies, procedures and norms. Boards can get the most out of new talent by ensuring they have robust onboarding processes in place. It can also be helpful to pair new directors with board buddies or mentors who can help guide new directors through the spoken and unspoken rules of the road, especially during their first year of service. Finally, boards should invest in board education and development that can help directors fill gaps in their knowledge and stay current on key issues impacting the company.
Building a Pipeline for Talent
While expanding the reach for talent is critical, it is equally important to build a pipeline of diverse individuals who are prepared for board roles. This requires a long-term commitment to cultivating and developing emerging leaders within an organization.
This is not only good for the pipeline and for good governance overall, it also serves the organization in key ways: it creates a deeper bench of well-rounded leaders who can help tackle complex business challenges. This not only supports the business, but also fosters a strong succession plan for key leadership roles.
And as any executive who has served on an outside board will attest, serving as a director at another firm makes them a better leader. Getting an insider’s view on how other organizations approach strategy and risk, and learning from board colleagues in other industries, provide invaluable perspective executives can take back and put to use in their current roles.
There are two key ways that companies can play an active role in helping to increase the pipeline for diverse board talent:
■ Mentorship and sponsorship programs: mentorship and sponsorship are key components in nurturing talent within an organization. Programs that focus on developing high-potential individuals, particularly from underrepresented groups, can help them gain the skills and experience necessary for board roles. Mentors can provide guidance on complex business challenges, while sponsors — those in influential positions — can advocate for their protégés when board opportunities arise. Mentorship and sponsorship programs can play a crucial role in developing future board leaders. By providing guidance and support, mentors and sponsors can help individuals build the necessary skills and confidence to excel in board roles.
■ Leadership development programs: leadership development programs that focus on executive skills and strategic thinking are essential for preparing diverse individuals for board positions. These programs should emphasize not only technical expertise but also soft skills such as communication, negotiation, and crisis management, which are crucial for board-level discussions. By equipping diverse talent with the necessary tools to succeed, companies can ensure a steady stream of capable candidates for future board openings.
Conclusion
The future of corporate governance depends on the ability of boards to adapt to the evolving business landscape. By expanding the pool of potential board members, the following organizations play a vital role in identifying and training good board members by providing resources, training and networking opportunities, and connecting qualified candidates with board opportunities.
Organizations helping to foster board diversity by identifying and training aspiring board members and connecting qualified candidates with board opportunities
| Organization | Primary Focus |
| 50/50 Women on Boards | Increasing women’s representation on boards |
| Ascend/Pinnacle | Advancing Asian–Americans in business |
| Athena Alliance | Leadership development for women across executive ranks and the boardroom |
| Executive Leadership Council | Increasing Black executive representation in the boardroom and executive ranks |
| Extraordinary Women on Boards (EWOB) | Network of experienced women corporate directors |
| Him for Her/Illumyn | Male allyship and gender equity/diversity and inclusion in corporate America |
| Latino Corporate Directors | Increasing Latino representation on boards; board training and opportunities |
| LGBTQ Directors Group | Increasing LGBTQ+ representation on boards |
| National Association of Corporate Directors (NACD) | Director certification and general development |
| Santa Clara Black Corporate Board Readiness Program | Increasing representation of Black leaders on boards |
| Women Corporate Directors | Global organization supporting women on boards |
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Erin Essenmacher
Board Member and Senior Advisor
Email: erinessenmacher@gmail.com
Erin Essenmacher has more than 15 years of experience helping boards and C-suite executives navigate an increasingly complex business environment. She served on the executive leadership team at the National Association of Corporate Directors (NACD), most recently as president and chief strategy officer.
In her role at NACD, she worked with thousands of board members to enhance board effectiveness and to elevate the profession of directorship. Erin has helped prepare hundreds of candidates for board service and is a frequent speaker and author on the role of the board and how it is changing.
She has served on and chaired numerous non-profit, corporate and advisory boards. Erin currently serves as an advisor to companies across sectors focused on growth strategies and effective governance.
Rochelle Campbell
Chief Executive Officer
Email: rochelle@leadership-elevated.com
Rochelle Campbell is Chief Executive Officer of Leadership Elevated, a board recruitment and governance consultancy. She has had a successful career supporting boards and executives, across industries, customizing, developing and delivering a suite of board recruitment services including governance education, evaluations and more.
She has placed directors on boards from the F500 to large family-owned, private and nonprofit organizations, across industries, while leading the board recruitment industry with an 85% diverse candidate placement rate.
Rochelle speaks and writes on board composition, board diversity, governance and board recruitment-related topics. She has advised thousands of board directors and supported over 700 military flag and general officers (1–4 stars) as they transition to the private sector.
She is on the board of the Private Directors Association, DC Chapter as program chair, and on the PDA National Cybersecurity Committee, as nominating and governance chair on Civics and Service International, and the advisory board of Athena Alliance.