Only about 7% of CFOs sit on company boards, but that could change as corporate leaders make good on pledges to increase boardroom diversity. They may look to add directors who bring not just fresh racial, ethnic or gender perspectives, but in-demand skills like finance and accounting to the mix.
"Board diversity is something whose time has evolved to come," Byron Loflin, global head of board engagement at Nasdaq, said in a U.S. Chamber of Commerce webcast this week. "Demand is on the rise."
Corporate leaders have been talking for decades about broadening board diversity, but the effort took on new urgency last year with the rise of the Black Lives Matter movement and the growing importance of companies adding environmental, social and governance (ESG) values to their profit goals.
Reporting ESG performance, which includes diversity goals, is optional but that could change if the Securities and Exchange Commission (SEC) makes it required of publicly traded companies, something it's expected to look into under the Biden administration.
Even without SEC involvement, Nasdaq-listed companies could face a requirement to have at least two diverse members on their boards or explain why they don't under a proposal the company released last month. Should the proposal be finalized, as it's expected to be, companies would face de-listing if they don't meet the requirement.
"This listing rule is one step in a broader journey to achieve inclusive representation across corporate America," Adena Friedman, Nasdaq president and CEO, said in announcing the proposal.
Corporate leaders say board diversity is more than a feel-good exercise; studies show companies with diverse boards are more successful at moving into new markets and achieving higher profits.
Given these advantages, companies should be rushing to fill their boards with diverse directors but executives and search firms say it's easier said than done. Not only do seats not open up frequently — directors typically stay on a board at least eight years — but the big-company CEO ranks from which directors are traditionally selected are lagging behind the country's broader demographic shifts.
"In fact, there are very few racially diverse CEOs in the U.S. among the Fortune 500," Loflin said.
Efforts are underway to help companies broaden their searches, in part by reaching down beyond the CEO seat to CFOs and other c-suite executives and even further down than that, to executives running divisions and regions or sectors, especially if they're with global corporations.
"There are business leaders out there who are running P&Ls at large multinationals," Peter Gleason, CEO of the National Association of Corporate Directors (NACD), said. "These P&Ls are bigger than some companies' P&Ls, but [the people running them] are not identified in the public filings."
NACD has been partnering with the U.S. Chamber of Commerce on what it calls Accelerate, an initiative to help companies diversify their boards by expanding the networks from which companies traditionally pull candidates, and filling those channels with qualified candidates by giving participants two years of training on board responsibilities and protocols.
"It takes participants through foundational courses on director professionalism, fiduciary responsibilities, committee rules, strategies, risk, legal trends," among other things directors must know, Gleason said. The program ends with a certification exam.
Roy Dunbar, a Johnson Controls director, went through a predecessor program of NACD 20 years ago and has been on boards since.
Two boards recruited him at the same time after he was certified under the program, he said. He ended up joining the board of Humana after the CEO drove out to meet him at his office and personally asked him to join. He only recently left the board, after being a director for the company for 16 years.
Dunbar rose through the corporate ranks as an information technology executive, but CFOs, who bring finance and accounting expertise, could be among the most heavily recruited outside of CEOs because of the importance of the audit committee to boards.
"Boards are looking for skill sets, so think about what you bring," Cynthia Jamison, a former CFO and director of Tractor Supply Co. and Big Lots, said. "How do you fit into that puzzle? Is it risk management, an understanding of future trends, direct connection to the consumer, market analysis? Is it using data to understand things?"
Finance skills sought
Boards especially want finance, accounting and other specialized skills since the passage of the Sarbanes-Oxley Act in 2002, which came in response to accounting scandals at two major companies at the time, Enron and WorldCom.
"Since Sarbanes-Oxley, boards are looking for a different kind of diversity," Dunbar said. "Technology skills, controller skills. Anytime you have dislocation in the economy, you need a fresh look at boards."
To draw the attention of board chairs and recruitment firms, CFOs should make their ambitions known and over-prepare.
"You have to understand what a board does," Jamison said.
To the extent recruiters reach down to lower leadership rungs, candidates might not have experience presenting before boards or even having been in a board meeting, so learning board duties and protocols is crucial, she said. Programs like Accelerate are specifically designed to teach these things.
"If you're not in a position to be in a boardroom, even if just presenting, you should know policies and procedures, because it's its own world," she said.
CFOs especially have to be careful, because while they might want to be on a board, they can expect to be put on the audit committee, which tends to be the most work-intensive. When those responsibilities combine with those of their day job, CFOs can quickly find themselves over-extended.
"You don't want to be stretched too thin," John Rodi, audit committee institute leader at KPMG, has said.
But for those with the capacity to do both, the intense interest in board diversity, coupled with the need for those with finance and accounting skills, makes CFOs top candidates.