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Nilofer Merchant

October 9, 2013 by Speakers' Spotlight

Viewpoint: Twitter’s All-Male Board Spells Failure

Nilofer Merchant helps audiences take a sophisticated approach to understanding business models where making a profit doesn’t mean losing purpose, community, or connection. An expert in creating value in the new era of innovation and social media, Merchant shares her unique  insights to help audiences understand the changes that need to be made in order to excel in the fast-paced, ever-changing world. Nilofer shares this recent column from Time Ideas on how organizations can’t innovate if they don’t have a variety of perspectives:

It is ironic that Twitter, which has made so many individuals smarter because of the diversity of the social network, isn’t set up to do the same for itself.

Last week, in its preliminary filing for an IPO, Twitter revealed that all seven members of its board of directors will be white and male. (The list includes former Netscape CFO Peter Currie, former Fox executive Peter Chernin, Benchmark Capital’s Peter Fenton, former Google exec David S. Rosenblatt, co-founder and former CEO Evan Williams, and two insiders: co-founder Jack Dorsey and CEO Dick Costolo.)

Most market measures evaluating performance are focused entirely on short-term results: do they have an edge, can they deliver financial profits and so on. Those measures miss one crucial element that determines long-term viability – the ability to innovate. Innovation is a direct result of openness to new ideas. The key is to design for differences of perspective and world views so you can have a better chance at new ideas. If Twitter doesn’t change, it will fail.

Innovation is more important today than ever. The old rules about gaining competitive advantages with economies of scale are gone for good. Today, connected individuals can create value in a way that once only centralized organizations could. This puts more pressure on organizations to innovate. The fact is that sustainable competitive advantages aren’t even sustainable anymore. Rita Mcgrath, of Columbia Business School, has researched and written of this shift. It used to be that a firm could create and hold on to “competitive advantages” for 40-year arcs; today, those advantages are now transient advantages, with your ability to “hold” them for five years in fast-moving industries and 12 in slow ones. What once mattered for profitability was efficiency and size by which to dominate over others. What now count are new ideas, and the speed with which a firm can execute on those with others. So the role of governance and leadership has to shift to became a driver of innovation instead of a steward of competitive advantage.

Twitter needs to build a board that can adapt to the marketplace, quickly. Instead, Twitter has chosen to have a so-called classified board, in which elections of its seven directors will be spread out over a three-year period and is designed more for continuity than adaptability. Critics of the practice often point out that this leads to longer terms of service, thereby keeping turnover low. According to a report from the Harvard Law School Forum on Corporate Governance and Financial Regulation, the modern best practice is to moving to 1-year terms. This allows for more independently minded directors, not rubber stamps. After all, if you’ve advised and approved of a strategy that worked 5 years ago, you’re unlikely to design or vote for a new direction. Just as turkeys can’t vote for thanksgiving, directors get deeply invested in keeping those ideas they’ve initiates.

Then there is the issue of yet another all-male board. The problem is, unfortunately, not exclusive to Twitter. The company is, however, still the only tech powerhouse without a female board member. Google, Apple, Microsoft, Amazon, Facebook, Zynga, LinkedIn, and eBay all have at least one female elected to their boards. On Twitter, women out number men by 6%, so on that basis alone a board with no women to shape your strategic direction is troubling. But research shows that companies with mixed boards (with three or more women) outperform those without. Consider the findings of Catalyst’s study of Fortune 500 companies:

  • Return on Equity: On average, companies with the highest percentages of women board directors outperformed those with the least by 53 percent.
  • Return on Sales: On average, companies with the highest percentages of women board directors outperformed those with the least by 42 percent.
  • Return on Invested Capital: On average, companies with the highest percentages of women board directors outperformed those with the least by 66 percent.

When you get a group of people together with similar backgrounds, lots of men, and low turnover, what you get is group think and continuity. And while an all white male board could conceivably have that ability to challenge one another, the likelihood is much higher if the board included a broader range of experiences. That, of course, has to include gender and color. But it should also include other industries.

Twitter has given many female and underserved voices a platform for an ongoing conversation. This openness has been powerful, even catalytic. On a personal level, it not only allows us to share, but to co-create with speed. Openness translates into a strategic advantage when applied to organizations and leadership. It not only allows for more collaboration, it enables a fast, fluid flexible organization ready to leap from opportunity to opportunity. If Twitter wants to prevail in the future, it needs to learn from its own platform.

By Nilofer Merchant/Time Ideas