On Board Diversity and Other Governance Paradoxes

The other day I used the two-dollar word “paradox” in a conversation and got challenged: “What exactly do you mean by that?” I confess that to explain myself, I had to go to several dictionaries. Paradox can be defined as a “situation that seems impossible because it contains contradictory elements” (Cambridge) or a “statement that seems self-contradictory and yet is perhaps true” (Merriam-Webster). 

Clearly, our current system of corporate governance is driven by myriad paradoxes, including its very existence. It is well accepted in law that corporations are managed by or under the direction of a board of directors (Delaware Corporate Law, Title 8), yet we also know that the greatest sign of a good board is one that selects the right CEO and lets that person do the managing. A related governance paradox is the seeming contradiction between accountability and independence: boards bear the ultimate accountability for corporate actions or failures to act, yet they must be independent, so unlike managers, directors cannot perform (or be paid for) full-time work. This leads to the famous paradox of information asymmetry, whereby the governed know more than their governors.  

Yet another paradox comes with the collective, problem-solving, consensus-driven nature of boards. Board meetings are not generally designed to feature showboaters; rather, they are structured to ensure robust and complete discussions. Some of the best directors I have known are the ones who said the least—but only because they knew someone else had made or would make their point.  

Are these conditions we should strive to change? On the contrary, I would argue that they are positive paradoxes that call for board leaders who can understand and embrace them, as well as paradoxical notions such as the servant-leader, doing well by doing good, less is more, and the whole is greater than the sum of its parts.   

For me, the best example of such a positive paradox relates to the effort to achieve diversity of personal characteristics among board members. Ultimately, corporations want to select the very best people for their board and committees, irrespective of gender, race, or sexual orientation. Yet many corporations also want diversity in these respects because such diversity can reduce the chances of groupthink. It is for these reasons that NACD has championed board diversity for decades and continues to uphold it through events such as the Diversity, Equity & Inclusion Awards. We have found that acknowledging and celebrating differences has led to a greater unity of purpose for boards.

The Great Seal of the United States caputre this ultimate paradox most succinctly: E pluribus unum. May it be so for your board!■

This article is from the Fall 2022 issue of Directorship.