Is Your Board Diverse Enough? A Recent Survey Says No

Boards clearly aren’t as diverse as they could be, according to PricewaterhouseCoopers’ “Board composition: Key Trends and Developments” report. For example, the report stated that while 97% of S&P 500 boards have at least one female director, up from 88% in 2005, the number of boards with minority directors has decreased to 86%, from 90% in 2005. Moreover, women comprise just 20% of S&P board members; minorities, 15%.

Multiple culprits are at work here, but a lack of support for board diversity tops the list. According to The Wall Street Journal, 75% of participants in a survey of approximately 4,000 board directors conducted by Harvard Business School, consultancy Spencer Stuart, and the WomenCorporateDirectors Foundation claimed they do not support boardroom diversity quotas. Just 9% of male directors queried claimed to be in favor of such quotas, as did slightly less than half (49%) of female respondents to the survey.

“A rise in institutional and activist shareholder activity necessitates moves by boards to identify vulnerabilities in board renewal and performance and, in some cases, establish protocols for engagement, including the engagement of a more diverse group of directors.”

Companies’ CEO makeup is also to blame. Findings from PwC’s 2015 Annual Corporate Directors Survey, noted in its board composition report, tell the tale. One major impediment to increasing board diversity cited in the survey: “Many boards look to current or former CEOs as potential director candidates. However, only 4% of S&P CEOs are female, less than 2% of Fortune 500 CEOs are Hispanic or Asian, and only 1% of Fortune 500 CEOs are African-American.”

Such impediments notwithstanding, technology emergence, changing regulatory compliance, and cybersecurity concerns are rendering board diversity in all its forms more important than ever. So, too, is a growing desire among many investors and stakeholders to influence board composition. They want to know that boards and their nominating and governance committees are appropriately considering board diversity (and other factors) when making director nominations, the report said.

Moreover, all of this, PwC said, is occurring “within an environment of aggressive shareholder activism, in which board composition often becomes a central focus.” In the report, PwC noted a finding from FactSet: Of all 413 activist campaigns against U.S. companies last year, 41% were board-related. Twenty percent of directors who responded to PwC’s 2015 Annual Corporate Directors Survey cited actual or potential shareholder activism as a rationale for having altered their board composition in the past year.

Similarly, the Journal reported, the authors of the Harvard Business School study asserted that “rise in institutional and activist shareholder activity” necessitates moves by boards to “identify vulnerabilities in board renewal and performance and, in some cases, establish protocols for engagement,” including the engagement of a more diverse group of directors. Institutional and activist shareholder demands “have pushed issues around board composition to the fore, as boards cannot afford to have …directors who aren’t delivering value” in their midst.

Such diversity should transcend gender and ethnicity, with CEOs, lead directors, board chairs, and nominating and governance committee chairs also proactively committing to seeking out diversity in the form of member backgrounds, skills, experience, personalities, and opinions, according to the report. An editorial in Forbes concurred. “The best boards,” the editorial stated, “are also the most diverse boards” because “they can offer a depth and breadth of insight, perspective, and experience to CEOs that non-diverse boards simply cannot.” Divergent backgrounds, the editorial said, “mean tackling the same idea in a different way,” which contributes to the good of the company. A variety of backgrounds can also “make the company more adaptable to its ever-changing environment” and “improve its reputation and brand,” according to Forbes.

In attempting to alter board composition and seek new board blood, the report stated, it behooves boards and their nominating and governance committees to think outside the traditional candidate box. “There are many untapped, highly qualified, and diverse candidates just a few steps below the C-suite—people who drive strategies, run large segments of the business, and function like CEOs,” PwC said.

Evaluating and refreshing board composition may pose a challenge. However, it is incumbent on CEOs and others to forge ahead, so that the board can meet new challenges as well as remain focused on delivering the long-term value enhancements shareholders demand.

 

 

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Julie Ritzer Ross
Julie Ritzer Ross has been covering all facets of business in a variety of vertical markets, including manufacturing, for the past 35 years and the use of technology in business for the past 25 years. A two-time winner of a Jesse H. Neal Award for business-to-business journalism, her work has appeared in such publications as MICROSOFT EXECUTIVE CIRCLE, CONSUMER GOODS TECHNOLOGY (formerly CONSUMER GOODS MANUFACTURER), VERTICAL SYSTEMS RESELLER, RESELLER MANAGEMENT, RIS NEWS, and INTEGRATED SOLUTIONS.

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