As pressure from investors continues to grow, more companies’ executive boards are adding women to their ranks and they also are voluntarily disclosing more information about directors’ skills and diversity. For instance, in 2017, 20.9 percent of board seats were occupied by women at the 500 largest U.S. companies by revenue, compared to 16.5 percent five years ago, according to a new report from Equilar. For the Russell 3000 as a whole, that figure is 16.0 percent, up from 12 percent in 2013, according to the report, “Board Composition and Director Recruiting Trends,” which features commentary from KPMG’s Board Leadership Center and Semler Brossy Consulting Group.
“There was a time when having women make up 20 percent of boards might have seemed an audacious goal, but now that goal has been reached for Equilar 500 [the 500 largest, by reported revenue, U.S.-headquartered companies trading on one of the major U.S. stock exchanges] executive boards overall—and seems in sight for the Russell 3000—so that achievement should be celebrated,” says Blair Jones, Managing Director for Semler Brossy Consulting Group. “At the same time, boards can’t rest on their laurels, as gender parity is the ultimate goal, and the current pace of change has that milestone still quite a ways away.”
Companies are also voluntarily providing more detailed information about their directors’ skills to help investors and other stakeholders understand how they approach board composition. In the Equilar 500, 18.4 percent of companies included a “board skills matrix” in their proxy statement to list qualifications of the directors on their board. Among directors at those companies, finance, business development and technology were the most commonly cited.
Increasingly, evidence shows that diversity leads to better financial return and investors are pushing the business case, Matthew Goforth, Equilar senior governance adviser and one of the study’s authors, says in a Bloomberg article. For example, in a 2015 study, McKinsey found that companies with above-average gender equity are 15 percent more likely to outperform markets than those which lag the average, and last year, a Credit Suisse report determined that companies with a more diverse workforce return more money to investors. Ultimately though, investors want to avoid the executive board becoming an echo chamber of eight to 12 people sitting in a room, Goforth says.
“Given the challenges businesses face from factors including disruptive technology, global competition and geopolitical uncertainty, companies have increasingly taken a more strategic approach to board composition, looking for skill sets and backgrounds that will add new and important perspectives to the boardroom conversation,” says Susan Angele, Senior Advisor, Board Governance, KPMG’s Board Leadership Center. “This need has caused many boards to look beyond their immediate networks when they recruit new board members.”
Interestingly, although executives at most large companies say gender and racial diversity are key factors in picking a new director, fewer than half of those companies are willing to divulge whether they are succeeding. For example, slightly more than 45 percent of Equilar 500 companies disclosed their board composition as it relates to gender diversity, and only slightly less than 40 percent included information about their directors with respect to racial or ethnic background, the report explains. As Bloomberg notes, although institutional investors such as State Street Global Advisors and BlackRock Inc. are pressuring boards to add women as directors and are now more likely than in the past to support shareholder proposals which call for better disclosure of diversity, lacking federal requirements, the way companies report the information varies widely.
“There is no standard” for how companies disclose such information, says Goforth, “but if that were to happen, it would put more pressure on boards to diversify if they were perceived as being less diverse.”
What are your thoughts on gender parity and diversity on boards of directors? Are the boards where you work, and at your company’s supply chain partners—diverse?