Racial diversity and performance 1 Racial Diversity and Performance of Nonprofit Boards of Directors

Increasingly nonprofit boards of directors are becoming more racially diverse or face pressures to increase their diversity. This research used survey data from 121 executive directors in nonprofit organizations in two metropolitan areas to investigate the affect of board member diversity, attitudes, and recruitment practices on board performance. Analysis revealed that boards with a higher percentage of racial minorities reportedly performed better on the political aspect of board performance. Increased diversity awareness was associated to all aspects of board performance, and the use of recommended recruitment practices was associated to four dimensions (analytical, educational, political, and strategic). A regression analysis revealed that diversity attitudes consistently accounted for variance in board performance. Racial diversity and performance 3 The boards of directors of nonprofit organizations are a powerful resource to negotiate a turbulent environment, to develop long range plans, and to improve performance (Bradshaw, Murray, & Wolpin, 1992; Green & Griesinger, 1996; Jackson & Holland, 1998). Similarly, boards serve as a legitimizing agent for the organization setting in place symbols, structures, and processes that earn approval of key constituents (Abzug & Galakiewicz, 2001; Herman, Renz, & Heimovics, 1997; Scott, 1995). Often the composition of the board serves as a fundamental force to secure resources (Provan, 1980) and legitimacy (Siciliano, 1996) for nonprofits. Aspects of composition that may improve the organization’s position include, for example, securing members who are business professionals, lawyers, experts in the field, clients, philanthropic, and racially/ethnically diverse. Key constituents of the organization will influence who a nonprofit selects as board members, but increasingly demographic and racial diversity are seen as very important both politically and operationally for boards. Nonprofit boards are becoming increasingly diverse (Rutledge, 1994) and yet the effect of diverse board composition on performance is not clear. Group Diversity and Performance There are two consistent and contradictory findings associated with increased group diversity. First, heterogeneous groups are better at problem solving and developing creative solutions to more ambiguous problems (Bantel & Jackson, 1989; Michel & Hambrick, 1992). Diversity encourages innovation and creativity because as more diverse individuals participate in a group they bring different ideas and perspectives and if managed effectively can come up with better solutions to complex problems. Second, these groups are more inclined to exhibit conflict and as a result homogeneous groups are better at solving task-orientated problems (Austin, 1997; Jackson, 1991). Diverse perspectives take time to work through and appreciate. Task oriented Racial diversity and performance 4 individuals and groups can become frustrated when too much time is spent on process instead of task accomplishment. Several factors contribute to the contradictory nature of these results, including the complexity of the task, group leadership, attitudes and skills of participants, and the nature of diversity in the group (e.g., demographic, socioeconomic, cultural). There are two general categories of diversity observable attributes (e.g., gender, race and age) and underlying attributes (e.g., attitudes, values, and socioeconomic status) some of which may be more important than observable characteristics (Shaw & Barrett-Power, 1998). Nevertheless, nonprofit organizations are confronted with the reality of increasing observable attributes on their board. One of the rationales for increased diversity on board membership is that even small organizations do not operate in a vacuum. They need to operate in an environment that recognizes a variety of stakeholders, including funders, clients, and the general community. Key constituents seek traits, characteristics, and processes on the board that they can readily identify to ascribe legitimacy (Herman, Renz, & Heimovics, 1997). Investigating the influence of observable attributes in nonprofit boards is an important first step in understanding how diversity might affect board performance (Widmer, 1987). Diversity on Boards of Directors The National Center for Nonprofit Boards (NCNB) conducted a comprehensive national survey to explore issues of diversity within nonprofit organizations and within boards of directors. This was the first national survey to assess characteristics of staff, board members, and clients, and their attitudes toward diversity (Rutledge, 1994). They found, as did Kang and Cnaan (1995), that although minority membership appears to be increasing, board members are still primarily white (approximately 80%) and male (approximately 60%). Racial diversity and performance 5 Siciliano (1996) researched board membership in YMCAs and found that increased occupational diversity among board members correlated to higher levels of social performance (i.e., legitimacy) and fundraising results. Social performance was conceptualized as judgments from community members about the effectiveness of the YMCAs. In addition, increased gender diversity correlated to higher levels of social performance, but negatively to fundraising success. Provan, (1980) looked at “power boards” and found that organizations with more prestigious board members were more successful in securing funding from the United Way. Rutledge (1994) presented a series of concerns expressed by ethnic minority board members one of which is the prevalence of tokenism. A sense by minority board members or others on the board that minority members are only included to appease constituencies and hence are not “full” members of the board could significantly limit their influence. Minority membership needs to be significant, 20% or more, to effectively combat marginalizing those contributions to the group. Negative attitudes regarding the rationale for increased board member diversity can also influence participation. The benefits of heterogeneity cannot be realized if contributions by certain constituents are discounted or marginalized. Zander (1993) suggested that boards must address basic group processes, such as member attitudes, to optimize the talents of board members. Consequently, the existence of negative attitudes about diversity may significantly limit the benefits of a heterogeneous group. Diversity Attitudes and Practices Fletcher (1997) and Rutledge (1994) found that increased awareness and sensitivity to diversity issues were critical to increased board diversity. Fletcher (1997) investigated board membership in Planned Parenthood affiliates, which had instituted a policy to increase board member diversity. They found that those affiliates that had addressed the cognitive beliefs of Racial diversity and performance 6 board members and made them aware of the benefits of board diversity were more successful in recruiting diverse board members. Attitudes toward diversity can also restrict or support the dialogue necessary for effective group performance. If board members feel supported and valued, they are able to contribute openly. Strategies to encourage awareness among board members would include workshops that explain the benefits and challenges of increased diversity. The board also needs to develop specific practices (e.g., recruitment strategies) to include underrepresented individuals and encourage participation from marginalized members (Austin, 1997; Fletcher, 1997; Rutledge, 1994; Zander, 1993). If the board maintains positive attitudes toward diversity we would expect to see an influence on composition and potentially performance. Recruitment Strategies Effective recruitment strategies are instrumental to identifying and securing qualified board members. Joyaux (1991) suggests that a nominating committee is the key to leading an effective recruitment process. The committee should meet throughout the year and identify specific organizational and board composition needs and then seek board members to fill those needs. They need to clearly explain board member responsibilities, orient new board members, and assign duties. Several practical booklets provide guidance for nominating committees and recruitment strategies (e.g., Hirzy, 1994; Hohn, 1996; Nelson, 1995), but little empirical research has addressed the relationship of these strategies to board performance. Board Performance in Nonprofit Organizations The task of nonprofit board governance is ambiguous and challenging, and a variety of strategies to assess board performance are suggested in the literature. One of the most common is to assess how well the board fulfills a set of generally recognized responsibilities (Ingram, Racial diversity and performance 7 1992). Typically, board members and/or executive staff are asked to rank board performance across those responsibilities. For example, Green and Griesinger (1996) investigated nine basic responsibilities of the board and found that boards that performed better on these on those roles (e.g., planning, setting policies, and program oversight) were judged more effective by stakeholders. An alternative to determining if the board has performed these responsibilities is to assess the extent to which a board has in place recommended procedures. Bradshaw, Murray, and Wolpin (1992) investigated thirteen generally recognized board processes, drawn from literature, (e.g., board involvement in operations, strategic planning, and board conflict) and found a positive association between the perception of board effectiveness and the use of these recommended practices (e.g., Carver, 1997; Houle, 1989). Similarly, Herman, Renz, and Heimovics (1997) found that most boards that used prescribed board practices, such as board development committees, board manuals, and consensus decision-making were judged to be more effective by stakeholders. A third strategy is to determine if the board has the appropriate mindset to effectively perform the wide-range of responsibilities ascribed to it. So, irrespective of the particular responsibility, the board is able to contribute to the strategic needs of the organization. Chait, Holland, and Taylor (1996) identified six characteristics of highly effective boards. The characteristics were identified through research with more than 1,000 organizations and several hundred interviews. These characteristics are exhibited in boards that are appropriately positioned to meet the challenges of governance. First, effective boards are contextual; these boards take into account the culture, history, and values of the organization when making decisions. Second, effective boards are educational; they educate themselves about the organization, the profession, and their own roles and responsibilities. Third, effective boards are Racial diversity and performance 8 interpersonal; they work to assure good relationships among board members. Fourth, effective boards are analytical; they recognize the complexities and subtleties of issues and seek to fully understand them. Fifth, effective boards are political; they accept as a primary responsibility the importance of maintaining healthy relationships among major constituencies. Finally, effective boards are strategic; they envision a direction and shape a strategy for the future (Holland, 1996). Jackson and Holland (1997) assessed these indicators with the Board Self-Assessment Questionnaire (BSAQ). Using a longitudinal research design, they assessed board and financial performance before and after a comprehensive training program that taught board members about their responsibilities and the six indicators of effective boards. They were able to identify improvements in board performance based on these training interventions and these improvements were associated with improved financial performance of the organization. The BSAQ is a viable and generally applicable tool to assess board performance. It is not restricted by classic roles, which maybe more important for some organization and less so for others (i.e., younger vs. older organizations), but instead identifies characteristics that should be present in any board. In addition, it recognizes the more ambiguous nature of the board’s role and as a result maybe more sensitive to recognizing the effect of a heterogeneous group. For example, the ability to analyze issues and develop strategic options are contributions that every organization needs from its board, irrespective if it is a grassroots start-up or a multi-million dollar human service provider. Does ethnically diversity contribute to more effective performance or can a homogeneous board membership satisfactorily exhibit the characteristics of an effective board? Herman and Renz (1999) concluded that more research is needed to understand how the social and political characteristics of the board are associated with performance. Racial diversity and performance 9 Research questions. As this review demonstrates, there is a perceived positive relationship between board member heterogeneity and board performance, but the empirical support for this assumption is contradictory and limited. Consequently, the first set of research questions investigates the extent to which increasingly racial diversity among board members is associated with better performing board. Hypothesis One: Boards with higher levels of racial diversity will be positively associated with optimal board performance. Next, an analysis was conducted to determine if positive attitudes about diversity and the use of recommended recruitment practices were associated with better performing boards. Hypothesis Two: Increased diversity awareness will be associated with optimal board performance. Hypothesis Three: The use of recommended recruitment practices will be associated with higher levels of board performance. In the event of a positive association between racial diversity, diversity attitudes, recruitment practices, and board performance it would be helpful to identify which accounts for unique variance in board performance. Unique variance means that above and beyond the variance accounted for by the other constructs, a variable is able to account for additional variance. For example, if recruitment practices and diversity attitudes are both associated with optimal board performance a regression analysis will determine if they account for more or less the same variance in board performance or whether they account for different aspects of performance. Understanding the ability of each construct to account for unique variance in board performance will suggest strategies for practitioners who want to improve board Racial diversity and performance 10 performance. Similarly, it will be of value to understand if different constructs account for variance in different elements of board performance. For example, racial diversity may account for unique variance in the political aspect of board performance while not in the educational aspect of board performance. Therefore, the final research question will investigate the ability of each construct to account for unique variance in each aspect of board performance (contextual, educational, interpersonal, analytical, political, and strategic) Hypothesis four: Racial diversity, diversity attitudes, and recruitment practices will each account for unique variance in board performance. Methods Procedure and Participants The sample was obtained through two separate data collection endeavors. A similar strategy was used in data collection. Surveys were sent to executive directors in nonprofit organizations, a reminder post card was sent one week subsequent to the initial mailing and a second instrument was sent to all non-respondents 10 days after the post card. The first data collection took place in the spring of 1998 with two hundred fourteen nonprofit human service organizations in the greater Los Angeles area. Responses were received from 58 executive directors a 27% response rate. The second data collection took place in the fall of 2000 in a major city in the southwest. Three hundred twenty – four executive directors of nonprofit organizations were sent a similar survey instrument. Responses were received from 125 executives (39% response rate). A comparison between the samples on several key organizational variables revealed that there was not a statistically significant difference between the groups on organizational age, staff size, board membership size, average number of racial categories represented on the board, Racial diversity and performance 11 diversity attitudes, or recruitment practices. Organizations in the Los Angeles area did tend to have higher percentages of ethnic minorities on their boards. For example, blacks had a significantly higher representation in Los Angeles where they averaged nearly 20% of boards members compared to less than 1% in the southwest city (t=4.24, df=155, p<.001). Similarly, Latinos accounted for about 16% of the board members in Los Angeles and less than 1% in the southwest city (t=2.46, df=156, p<.05). Whites, however, represented a significantly higher portion of board members in the southwest city (82%) compared to Los Angeles nonprofit organizations (56%; t=-5.79, df=173, p<.001). In reference to board performance, the organizations in the major southwest city did indicate slightly better performance on three dimensions interpersonal, contextual, and strategic, but not the composite measure. The difference in racial composition between the two samples is a concern, but the blended sample is more reflective of national nonprofit organizations and provides a rich context to consider issues of diversity. Although these differences may need to be investigated further it seems reasonable at this point to conduct analysis on all 183 responses. Predominately these organizations provided services to meet needs of low-income or disadvantaged individuals. The sample, however, was very heterogeneous in reference to budget and staff size. For example, staff size ranged considerably from 0 to 870. Based upon a concern that organization size (budget and staff) may directly affect board performance, board composition (size and diversity), diversity attitudes, and recruitment practices, an analysis was conducted comparing smaller organizations (below the median) to larger organization (above the median). Analysis revealed that larger organizations performed better on three board performance dimensions (strategic, analytical, contextual) and the composite measure of board performance. Similarly, they tended to have better recruitment practices, larger and more Racial diversity and performance 12 heterogeneous boards. Consequently, the sample needed to be adjusted to account for the effect of organizational size. Two controls were used to limit the effect of organizational size. Organizations with budgets over 2 million and staff over 45 were excluded from the analysis. This resulted in 121 organizations (66%). Repeating the analysis with only these organizations eliminates the effect of organizational size on board performance and diversity attitudes. Larger organizations, however, are still more likely use recommended recruitment practices (t=3.02, df=119, p<.01) and have slightly more board members (t=3.25, df=119, p<.01). These effects can be controlled for in later analysis. The modified sample consisted of 121 organizations, seventy-eight from the southwest and 43 from Los Angeles. There was a mean staff size of 8.72 (sd =9.70), and a median of 5 paid staff members per organization. One organization was established as early as 1885, while the median year of initial operation was 1986. Board membership varied from as few as 3 members to as many as 60. The average number of board members was 15.94. Board meetings were conducted as frequently as once a month to as infrequently as twice a year. On average, these organizations held eight board meetings a year. The next section discusses the scales used to measure board performance, racial diversity, diversity attitudes, and recruitment practices. Measures