from NY times

May 9, 2004
ARMCHAIR M.B.A.
Looking in the Mirror, and Finding the New Boss
By WILLIAM J. HOLSTEIN

ESPITE all the discussion about encouraging diversity among corporate leaders, the overwhelming majority of chief executives are white men. Rakesh Khurana, an assistant professor at Harvard Business School and the author of "Searching for a Corporate Savior: The Irrational Quest for Charismatic C.E.O.'s," argues that business schools, executive search firms and corporate boards all limit the diversity of candidates for chief executive. Following are excerpts from a conversation with him:

Q. What are the statistics on diversity at the top of companies?

A. If you were to look at the demographics of the C.E.O.'s of the largest corporations, starting in 1900, zero percent were women, zero percent were African-Americans, zero percent were Asians, 10 percent were immigrants, 7 percent were Roman Catholics and 3 percent were Jewish.

In the 1990's, one or two women emerged as C.E.O.'s, but they would come in and go out. It's still in the single-digit percentages. The same is true for African-Americans and Asian-Americans. Immigrants are about 5 percent. Catholics make up 5 to 10 percent and people who are Jewish make up 2 to 10 percent, depending on the estimate. It's pretty glaring that the executive elite doesn't look very much like the work force.

Q. Why has so little changed?

A. You have to look at the mechanisms that sort people into those jobs. There are prefactors before you even get into an organization. One of the things we know is that women are represented less in business schools than they are in medicine and law, where they make up 50 percent of the class. In business schools, it's about a third.

Q. Are you saying that business schools screen out women?

A. I don't think they're screening them out, but the applications to business schools are lower for women.

Q. So women screen themselves out?

A. Yes. There's further data that women who graduate from elite business schools also drop out of the full-time work force a few years after graduation at a very high rate.

A. You see them disproportionately in staff functions as opposed to operational functions. If you look at the distribution, you will see that many women executives are in the human resources department. These are not the traditional pools from which C.E.O.'s are drawn.

Q. What have companies tried to do about an absence of diversity at the top?

A. One of the academic hypotheses has been that if you opened up internal succession in large companies, you'd get larger heterogeneity of choices that the firm could choose a C.E.O. from.

Q. But as you say, things haven't changed much. Is that because of how boards make decisions?

A. It's most evident in who's considered eligible versus who's not eligible for the C.E.O. position. Most of the candidates are generated by the boards themselves. While executive search firms add some names, that is not the core group that is being considered.

Q. What's wrong with directors' relying on their own experience and knowledge?

A. You tend to know people like yourself. One argument would be, that's exactly why they bring in a search firm. But it's not clear that the search firms bring in candidates that the board is not aware of.

Q. So it seems that boards are most responsible for maintaining cultural homogeneity.

A. Yes, they have a deeply institutional process by which they filter candidates and put them in the columns of acceptable versus not acceptable.

Q. Coca-Cola's board seemed to consider a very limited pool of executives before choosing an insider to be the new chief executive. Is that typical?

A. Yes, it's a really dramatic indication of the entire nature of the C.E.O. selection process.

Q. What else are boards looking for?

A. They want someone who comes from a well-regarded or high-status company. Harvard didn't look in the community college market for its last president, for example.

Q. Aren't boards looking for skills?

A. These other factors are often more important. In my research, directors have said things to me like: "I would look at how they verbalize their thoughts." Another told me that "posture, mannerisms and way of dress" were decisive. Another said: "I liked the way he was raised. He had good parents and tremendous genetics."

Q. Will things change now that boards are becoming more diverse?

A. It potentially could. The question is to what extent that is driven by tokenism versus true diversity. That remains to be seen.

Q. Let me provoke you. Is it a problem that C.E.O.'s are mostly a homogeneous group?

A. Great question. If we believe that we want to choose the best leaders for our companies, I find it difficult to accept that leadership quality is the monopoly of a particular gender or ethnic group. Leadership skills are distributed throughout every group. You see it in medicine and law, nonprofits, universities and in the political world.

Corporations have become central institutions that help organize our society. Their role is only allowed to the extent that society sees both those leaders and those organizations as legitimate. If there is a belief that the process governing the choice of our leaders is not legitimate, then trust in those institutions goes down. Our entire system is built on that trust.

William J. Holstein is editor in chief of Chief Executive magazine.