For the first time, women and people of color were picked for a majority of open S&P 500 board seats this year, due, in part, to increasing pressure from investors to improve gender and racial disparities. Indeed, S&P 500 boards appointed 397 new independent directors in the 2017 proxy year, and just over half of the new directors were women and/or minorities, according to a new study by Spencer Stuart, an executive search and leadership advisory firm.
As the firm’s “2017 Spencer Stuart U.S. Board Index” details, of 397 independent director slots open in the 2017 proxy season, 36 percent went to women and 20 percent to minorities. Although the tally includes most board seats, it leaves out executives who are also directors of their companies. Consequently, combined, women and minorities made up 50.1 percent of the new board members, compared with 42 percent last year.
“It’s a step in the right direction, for sure, and it’s the first time we’ve gone over 50 percent,” Julie Hembrock Daum, who leads Spencer Stuart’s North American Board Practice, says in a Bloomberg article. “Boards are looking for people who are younger and with different skill sets, and that does open the boardroom for more women and minorities.”
Spencer Stuart’s research found that female representation among new S&P 500 directors rose to 36 percent (142 directors), the highest since Spencer Stuart began tracking this data in 1998. Meanwhile, minority males (defined as African-American, Hispanic/Latino or Asian) made up 14 percent (57) of the new independent directors. Six percent (25) of the new directors were women and minorities.
The flip side of the coin is that despite the number of new women directors, the percentage of women on S&P 500 boards increased only incrementally to 22 percent of all directors, up from 21 percent in 2016 and 17 percent in 2012. This is due, in part, to modest director turnover. Forty-eight percent of boards did not appoint a new director in the 2017 proxy year.
“There’s still just very little turnover, so even though the percentage of new directors that are younger and that are diverse has gone up, it’s off a low base,” Daum says. “There’s a high degree of interest in diversity, but it’s still very slow change.”
One reason directors may be reluctant to leave is because they’re well paid. Average director compensation rose one percent to $288,909 this year, the Bloomberg article explains. Also, for the first time, more than half of boards with a mandatory retirement age have set the limit at older than 73 on average, giving directors more time to serve.
Nonetheless, board composition is an important governance issue for many institutional investors, and many are demanding a younger presence in the boardroom to ensure the board has the digital skill sets and perspective necessary for emerging areas of board oversight—including e-commerce, digital marketing and cybersecurity. There also is growing investor interest in whether boards are composed of a diverse mix of skills, qualifications, perspectives and backgrounds that align with the company’s current and future strategic objectives and risks, Daum says.
“Boards can continue to make progress on this front by committing to regularly reviewing and refreshing the board and by casting a wide net to include first-time director candidates,” Daum says.
What are your thoughts on gender and racial diversity on boards of directors? How do you think different perspectives will impact the board's governance?