What’s Next for More Diverse Corporate Boards?
The boards of directors of publicly traded companies are more diverse than ever, with significant gains in the last two years with calls for greater social equity.
Nonwhite directors now hold 4,500 board seats among companies in the Russell 3000 stock index, up 25% since the end of 2020 and almost 50% since the end of 2019, according to ISS Corporate Solutions, a consulting firm that works with companies on corporate governance, executive pay and social issues. This comes at a time when the Public Affairs Council itself increased its board diversity by 10% in 2021, one of its DEI priority goals set in December 2020.
Directors from historically underrepresented groups occupy 17% of board seats, The New York Times reports, relying on ISS Corporate Solutions’ findings. “Women, of all races, have also made gains,” according to the Times. “They now account for 27 percent of all directors, up from 24 percent.” Even so, six of 10 directors are white men, and 80% are white men and women.
In 2021, Black directors were named to fill 535 board seats, raising their total to 1,919, a jump of almost 40%, and now account for 7.4% of directorships. That’s up from 4.5% at the close of 2019.
“But directors from other underrepresented groups did not fare as well,” the Times reports. “The number of Hispanic people on boards, for example, went up 15 percent, yet they make up only 3 percent of the total, far shy of their 18.5 percent share of the population.”
“It is still not — as you can see from the numbers — growing at the level that it needs to,” Esther Aguilera, CEO of the Latino Corporate Directors Association, tells the Times. “We celebrate all diverse appointments, but Latinos are being left behind.”
Much of the improvement seems driven by pressure from employees, but customers and the general public have also made their feelings known. California has passed laws requiring greater diversity on corporate boards, and similar legislation has been introduced in other states as well.
What’s Happening in California
One California law requires boards of public companies based in the state to have at least two female directors, and another requires boards to have one or more directors from an “underrepresented community,” meaning people of several races and ethnic groups as well as people who identify as gay, lesbian, bisexual or transgender. Legislation in other states would require boards to have a minimum representation of women.
Progress is being made, but many believe it has been too long coming. “The biggest problem is that people had not spent enough energy focusing on finding people who could be great candidates for boards,” said Freeman A. Hrabowski III, president of the University of Maryland-Baltimore County and a longtime T. Rowe Price board member. Hrabowski, who is Black, tells the Times that companies “are being more creative in finding candidates today.”
‘Too Old and Out of Touch’
Companies should also be looking for younger board members, Jamaal Glenn writes in Time. A business consultant and adjunct professor of entrepreneurship at New York University, Glenn says boards are “too old and out of touch, rife with industrial-era yes-men who are beholden to their CEOs and ill-equipped for the digital age.” Among companies in the S&P 500, he points out, the average board member is 63 “and trending older.”
“More racial and gender diversification is a good start, but far from enough,” Glenn argues. “Future-looking boards also need to get younger, more independent and better-skilled in emerging areas, such as cybersecurity, artificial intelligence, and automation.”
He adds that companies should also be more transparent about the demographics of their boards, using metrics that “not only include race and gender but also age, skills, expertise, management style, political ideology, and geography. Quantifying this information is the first step in understanding how the board’s demographics might make it susceptible to blind spots and disclosing it will allow for better accountability.” They should also divulge when they are recruiting new board members, Glenn says.
Improved numbers will only tell part of the story, of course. While it is commendable for companies to establish DEI goals for their boards, they must also make sure new board members have a voice, Kathy Jaffari, an attorney with Cozen O’Connor in Philadelphia, says in an article posted by the Society for Human Resource Management (SHRM). “Boards have to decide whether they are committed to inclusion,” Jaffari said. Inclusion “is about how people relate to each other. Inclusion is about being willing to embrace differences.”
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