Understanding the dynamics of effective board diversity
A dialogue with Kaley Childs Karaffa, Head of Board Advisory in the Americas at Nasdaq
By Bill Sarno
As more corporations recognize the value of bringing more Latinos and members of other under-represented groups into their board room, the selection of directors is becoming a dynamic process that emphasizes more than checking off the right boxes or even meeting quota rules.
"There has to be an understanding that promoting diversity only for the sake of being able to disclose you have board diversity isn't going to have the same impact," said Kaley Childs Karaffa, Head of Board Advisory in the Americas at Nasdaq where she advises boards on corporate governance matters.
To be effective, implementing diversity should be coupled with developing an inclusive culture and environment, said Karaffa. In advocating for board diversity, Karaffa stresses that director and executive management must understand that having people with different backgrounds and skill sets in the boardroom can prevent risks and bolster more significant innovation. These are the foundational elements of sustainable, durable, and high-potential organizations, said Karaffa, who joined Nasdaq in 2019 to help develop their Board Advisory and Compliance Solutions services.
Karaffa also has a legal background; she graduated from the Pace University School of Law and worked as a practicing attorney in New York and subsequently served as general counsel of a manufacturing corporation. At Nasdaq, she became part of an organization that has made championing inclusive growth and prosperity its corporate purpose. Beyond serving as an exchange, Nasdaq supports thousands of public and private corporations worldwide with corporate governance services to help them function effectively and have the right technology and insight to drive growth and prosperity, Karaffa said.
In recent years, factors such as the pandemic technology advancements, and complex business and geopolitical environments have put pressure on how boards oversee their corporations and interact with the management team. "With those demands, we have started to see some improvement in the quality of personal characteristics that are represented because it enables boards to better understand these issues and their impact on the corporation," said Karaffa.
Last year, Nasdaq implemented a disclosure rule that recommends diverse representation objectives. "We are starting to see the disclosures of board diversity in proxy statements along with an increased awareness around the importance of diversity of all types this is promoting," Karaffa said.
In conversations with board members, she has found that board effectiveness is overwhelmingly benefitted from improved board diversity.
To experience positive impact, board members, led by board chairs and committee chairs, should have an open conversation to understand how diversity will enable individual and group effectiveness, Karaffa said. The prior will benefit the company and its stakeholders, allowing the corporation to be differentiated and durable in the long term.
There are critical facets to how this dialogue should proceed. It includes an initial conversation to define diversity and understand it in a way that genuinely aligns to the corporate values and purpose.
In addition, Karaffa notes that board leaders must be effective facilitators to enable each director to bring their expertise, experiences, and personal perspectives to enhance decision making.
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Photo credit: Nasdaq
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Karaffa stresses that top management must understand that having people with different backgrounds and skill sets in the boardroom can prevent risks and bolster more significant innovation.
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