Diversity is a hot topic. JP Morgan recently released an insightful report, Board Diversity: Is it really Improving for Women? illuminating interesting trends and data regarding women’s representation on boards. In short, while some progress is being made, the study reported that the majority of the increase in female board membership could either be attributed to female management team members being elevated to the board level or in last minute diverse board member appointments immediately prior to a company’s IPO. To the latter point, California’s AB 979 legislation which mandates diversity on public company boards for companies domiciled in California, drove a considerable number of board appointments.
The study offered several suggestions, most importantly a recommendation to bring on diverse independent board members earlier in a company’s progression. Several reasons were cited for this absence: a startup’s need to simply survive, the often homogeneous networks of VC investors in terms of both sector and geography, and a lack of emphasis on independent directorship in the early stages of a startup’s lifecycle.
As a diverse investing team at Acrew, we have seen firsthand the power of diverse perspectives. Our team is 90% women or people of color, we span three generations, and we bring a diversity of skill sets, industry experience, and perspectives to our own decision making. Importantly, to expand the network of diverse perspectives to our portfolio companies, we recently created a Crew of Leaders, a network of over 500 diverse executives, investors, and influencers to augment our portfolio company perspectives and place board and advisory members where a mutual fit exists.
We think the JP Morgan study drives home an important message around bringing on diverse and independent board representation earlier in a company’s lifecycle. There is a wealth of data from McKinsey, Google, and Forbes that support how diversity results in better decision making and therefore improved returns. For example, a recent study from McKinsey & Company showed that gender-diverse boards are roughly 30% more likely to outperform their peers financially. Gender and ethnically diverse boards improved ROE by 35%. Forbes supported these findings in its own research that reported that startups with diverse leadership teams delivered 30% higher returns.
Inviting diverse and independent perspectives earlier in a company’s journey will only drive better decisions, expand opportunity, and compound progress and opportunity. Diversity should not be left to the more mature stages of a business, but rather woven into the decision making processes early in a company’s lifecycle.