Efforts to convince companies to diversify their boards of directors appear to be working as recent data show that record-breaking progress was made recruiting members of historically underrepresented groups onto corporate boards over the last year. Now the question is whether these gains are sustainable.
According to initial data measuring the latest trends in board composition and governance practices among S&P 500 companies from the Spencer Stuart 2021 Board Index, 47 percent of the 456 new independent directors added during the 2021 proxy season are Black/African American, Asian and Hispanic/Latino/a—a new record. By contrast, underrepresented groups accounted for 22 percent of all new independent directors in 2020 and just 14 percent in 2011, a decade ago.
Black/African American directors made the greatest strides of all underrepresented groups, accounting for 33 percent of all new independent directors, three times more than last year. In fact, over 70 percent of the new independent directors from the Black/African American, Asian and Hispanic/Latino/a groups who were recruited this proxy season identify as Black or African American according to Spencer Stuart research. This is the largest addition of Black/African American directors since Spencer Stuart began tracking this data.
The representation of Hispanic/Latino/a new independent directors showed some growth, increasing to 7 percent in 2021 after averaging between 3 percent and 5 percent since 2008. However, the representation of Asians among new independent directors took a step back this year after showing an increase in 2020, declining from 8 percent to 7 percent.
Additionally, the number of women among new S&P 500 independent directors declined slightly from 47 percent last year to 43 percent in 2021.
While we should take time to acknowledge the progress made in diversifying corporate boards, this is also a good time for corporate boards to again determine where they stand on this issue.
• What will it take to diversify your board? While all of this data is encouraging, whether these gains are sustainable or can even be improved upon is still an open question. It should not be expected that the resistance to adding women and underrepresented groups to boards of directors has disappeared because of one year of noteworthy gains. If your board has diversified its ranks, consider creating a board succession plan that will keep the board diversified in the future.
Consider what it has taken to get this level of change just among S&P 500 companies: several states enacting legislation to fine companies that do not add women and underrepresented groups to their boards; the world’s largest institutional investors (including BlackRock, State Street and Vanguard) all threatening to vote against the reelection of directors on companies that do not diversify their boards; proxy advisory firms ISS and Glass Lewis threatening to vote against the reelection of directors on companies that do not diversify their boards; and the Nasdaq stock exchange proposing to delist companies that fail to diversify their boards. What exactly will it take to get your board to diversify?
• Will your board diversify or detail why it won’t? It should be noted that much of the state legislation, proxy advisory firm and institutional investor mandates for diversifying boards asked companies to comply by the end of 2021. Those companies that don’t comply often can avoid penalty by explaining why they have not complied. The reasons for not adding diverse groups to your board must satisfy legislators, regulators and investors, so engagement with these groups is necessary to determine exactly which type of answers might satisfy them. If you haven’t engaged with legislators, regulators and investors on this topic, expect to hear from them next year.
• Make an effort to find pipelines of diverse talent. While board diversity among S&P 500 companies has improved today, it remains to be seen whether similar improvement is taking place among all publicly traded companies. Even with the progress this year, Blacks/African Americans make up only 11 percent of all S&P 500 directors; Asians account for 6 percent and Hispanics/Latinos make up only 4 percent. There is more progress that can be made at these large companies. The percentage of underrepresented groups on the boards of smaller-sized publicly traded companies is far less.
The record-breaking increase in underrepresented groups being added to boards of the S&P 500 demonstrates that there is a wealth of talent in corporate America that has been underutilized. Boards can reach out to companies that have made the adjustment to their boards and find out how they did it. There are many efforts to assist companies that are seriously looking for diverse board candidates. Spencer Stuart says recruiting directors from underrepresented racial and ethnic groups was the top recruiting profile for the last two years, so the faster boards reach out for help the better their chances of finding the best diverse candidate for their board.
