Director FAQs and Essentials

The Inclusion-Driven Boardroom: Incorporating Inclusion to Realize the Benefits of Diversity

By NACD Staff

06/01/2023

Inclusion Director Essentials

Having a diverse board is only valuable to the extent that it is also an inclusive board. An NACD survey of board directors finds that the top benefits diversity can bring to a board include broadened perspectives and expertise, the ability to better identify blind spots, improved board performance, enriched stakeholder relationships, and enhanced oversight of strategy and risk. But these benefits may go unrealized without an inclusive boardroom culture and practices that aim to intentionally draw out these advantages.

US board diversity is experiencing significant focus from regulators, investors, and other stakeholders, spurring some boards to assess the effectiveness of their inclusion practices and leading others to establish those practices for the first time. Yet based on feedback from NACD membership and survey data, it seems this is still an area that some boards struggle to “get right” or to implement. This can be attributed to various factors, including inauthentic efforts to enhance diversity and inclusion; not implementing measures of accountability; a lack of understanding of what inclusion means (and how it is different from diversity); and not realizing the need for, or appreciating the value of, a cultural shift. It is important to note that it often takes time to see progress, particularly when it means breaking habits and changing behaviors and norms.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.