Twitter is understandably getting lots of attention ahead of its IPO next week, but the company’s financial details aren’t the only revelations drawing scrutiny. The company has faced a torrent of criticism for having only one woman in its upper ranks and no women on its seven-member board of directors. Twitter has decided to postpone nominating a female board member until after the IPO, according to Kara Swisher at AllThingsD.
If you listen to the company’s defenders you’re likely to hear an argument that it really doesn’t matter what race or gender the social networking pioneer’s directors happen to be. What is crucial, the defense runs, is that they’re technologically savvy and bring great business credentials to the boardroom table. CEO Dick Costolo tweeted that he doesn’t want a woman on the board just to check a box.
All that is true enough, as far as it goes. The problem is that it doesn’t go very far.
The implication in Costolo’s “checking a box” remark – that it may be hard to find a suitable candidate because there’s such a small pool of qualified women to draw from in the first place — seems rather silly in light of the fact that with every year that passes, more and more women are taking senior or top jobs at major Silicon Valley firms, from Marissa Mayer at Yahoo to Sheryl Sandberg at Facebook. These power players clearly have demonstrated the ability to do more than just “check a box,” becoming agents of change at their organizations.
What worries me more is that the readiness to resort to such banal explanations for the lack of boardroom diversity, and the willingness to go into the IPO process with such a visible flaw that could have been so easily corrected at some point, might signal a broader governance question. Specifically, if Twitter’s leaders can’t challenge themselves to come up with the broadest range of experience and expertise at the board level, how robust is their ability to identify and capture the best business opportunities?
The Twitter execs are right about one thing: Board seats are scarce and it’s up to a company to treat them as such. There’s no room for picking a retired CEO who plays golf with the chairman just because he’s going to be collegial and go along with the crowd. Nor is there any room for someone who checks the box for diversity if he or she doesn’t bring along a crucial set of skills.
At the same time, anyone who squanders the chance to bring a new kind of perspective into the discussion is wasting an opportunity. Anne Sheehan, director of corporate governance at the giant California State Teachers’ Retirement System (CalSTRS) pension fund, once told me that studies that CalSTRS has reviewed or conducted have shown that homogeneous boards are less likely to spot chances to outperform and more likely to miss some of the risks that lie ahead. That’s why CalSTRS pushes for boardroom diversity.
Does such diversity really make a difference? Research says it does. A study from Catalyst revealed that those companies with the most women on their boards earned 26 percent more on invested capital than those with the fewest. In another study, McKinsey & Co. discovered that operating profit reported by those international companies with more women was, on average, 56 percent above that of the average business.
Not convinced? Consider the diet industry. Up until last year, Nutrisystem had no women on its board. That made it harder to push back against a big marketing push emphasizing weight loss success stories from the likes of former NFL quarterback Dan Marino, designed to attract men to Nutrisystem’s programs.
That push worked, but its appeal was always limited. As one analyst commented, the dominance of women in this industry is one that any business ignores at its peril: Women account for at least 80 percent of diet industry revenues, meaning that any male-focused campaign had limited upside and a readily identifiable downside. Not having a woman on the board meant there was no one to push back against an off-kilter marketing message. And yes, Sheehan found that Nutrisystem was lagging in market share and returns when compared to its rivals – one reason why CalSTRS began pushing for changes. (Today, Nutrisystem has two women on its board, up from only one two years ago.)
While the technology industry might be dominated by men, studies have shown that a majority of users of Twitter are women. Moreover, Twitter’s growth is likely to come as much from overseas users as it is from those in North America. So the lack of any boardroom expertise on what those potential new members of the Twitterati might be looking for also is glaring. (And no, hiring consultants isn’t enough: They’re rarely taken as seriously by directors as is the opinion of a peer – a fellow director.)
It’s ironic that a company that has built its business on shaking up the status quo appears to be so stuck in that status quo when it comes to its board makeup. It’s entirely reasonable to at least raise the question of whether a company that has to be prodded into bringing someone “different” onto their board can really be described as innovative. For the moment, the buzz is all about having a woman, because that’s one of the forms of “diversity” that has been most studied. But the issue goes beyond gender to include race and national origin, and even background.
Right now, Twitter’s board isn’t just made up of white men; it’s white men who happen to be venture capitalists or current or former Silicon Valley CEOs (with the addition of a Hollywood mogul). Where is the perspective of the Fortune 500 companies who are making Twitter part of their marketing and public relations initiatives? Or a policy wonk who can prod Twitter to think about free speech issues and how they might affect its business? Those are only two of many options that spring to mind.
Diversity for diversity’s sake is a bad idea. But shunning real diversity out of fear that someone’s going to say you’re just checking a box is foolish. And when it comes to a fast-growing company in one of the fastest-moving businesses out there, the last thing any investor wants to see is a sign that executives are behind the curve.