Network Diversity Leads To Board Diversity

Fred Wilson’s recent post on diversity was thought-provoking on several levels and got me thinking not just about board composition but more broadly about the question of networks and how relying too heavily on existing networks can limit the diversity of those networks. There are many things that we (meaning the tech and venture industries, but I’m also shining this light on myself here) need to do to better promote and support equity and diversity in our work. To some extent at the core of this challenge is that many of us have limited diversity in our own personal and professional networks (see this interesting take from Rick Klau of Google on this topic). Fred’s post helped clarify one of the real challenges of limited networks because in large part the search for outside board members is an exercise about the network of one’s current board members’ networks. Companies typically look for new board directors on their own (meaning they typically don’t engage a search firm) and the result is that most new board member are either directly connected to their existing board or management team or one degree away. That’s incredibly limiting, even for a group (tech entrepreneurs and investors) that considers itself very networked.

One of the things that’s really hit home with me over the past weeks as I’ve reflected on why I have done such a poor job promoting diversity across my work (and venture more broadly has) is that I/we need to do a better job of proactively building networks that include more diversity. I recognize that this is hard – it’s something that I’ve been consciously trying to do for years and I know from first hand experience that it takes both time and effort. On the board level, supporting organizations such as The Board List, himforher, and The Valiance Funding Network are good ways to jump-start the process. But conscious and deliberate effort is required to both recognize that many of us have limited networks when it comes to diversity and that we can do more to expand those networks. There’s a change in mindset that needs to accompany this and I’d encourage us to embrace it rather than ignore our network shortcomings or rationalize them away (there are tons of interesting people from all sorts of backgrounds out there – it actually doesn’t take that much work to find them and start connecting).

Fred also talks about the challenge of opening up new seats in the board room. The basic issue is absolutely correct – board rooms are too static. In economics, there’s a term known as business dynamism. Ian Hathaway and Robert E. Litan, in a report for the Brookings Institution describe business dynamism as “the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over.” Importantly they go on to note that “[r]esearch has firmly established that this dynamic process is vital to productivity and sustained economic growth.” Almost like a living organism, economies stay healthy by constantly building and changing. It’s a balancing act between growth and consolidating market power and new businesses and new ideas nipping at the heels of incumbents. The US has historically had relatively high dynamism and it is one of the factors that has been credited for America’s relative advantage in net job creation and the overall health of our economy.

Contrast this with the behavior of corporate boards which tend to be extremely and stubbornly static. They start with the founder and initial investors and typically when new investors come in, more investors are added to the board (rarely replacing an existing investor, more typically just adding to the number of people around the board table – for whatever reason, people are loathe to get off of boards once they’re on). We know from research that having more than three venture investors on your board is correlated with lower outcomes. Fred’s point in his post about creating board turnover is both helpful in terms of thinking about opening up spots for other diverse candidates but also in terms of enhancing the overall health of an organization by bringing in new ideas and new thinking. Bringing dynamism to the board level would be beneficial on both counts. 

I took a look at this across my own boards (I’m on 14 company boards at the moment – subject for a different post about the optimal number of board seats…). My average tenure is over 5 years. I have several boards where I’ve been on the board for more than 10 years. Most of the board’s I’m on change their composition rarely outside of adding a new investor (I wasn’t able to quantify exactly but board’s I’m on add or remove a board member on average about every 4 years). It’s clearly a problem and one with both an easy solution (introduce more prescribed board turn-over) that’s at the same time very hard (a CEO I work with suggested this idea and when I volunteered to be the first person off the board was told that no, that wasn’t what they were thinking).

Still, I’d push us as an industry to think about how these two dynamics intersect. We know from studies that diversity at the management and board levels leads to better business outcomes. We know in other contexts, dynamism is helpful to systems. Perhaps we can and should bring those two ideas together.