Boardroom diversity update
- May 30, 2019
- Posted by: Hood & Strong
- Category: ABD
For companies of all sizes and industry groups, diversity is a hot topic today. Many corporate directors want to increase board diversity to capture its strategic benefits. Here are key findings from recent boardroom diversity studies and some characteristics — beyond gender and race diversity — that boards should look for in new members.
Survey says …
The number of Fortune 500 companies with greater than 40% diversity has more than doubled since 2012, according to the 2018 Missing Pieces Report by the Alliance for Board Diversity (ABD). The study examined the representation of women and minorities on large U.S. public company boards of directors.
ABD has set 40% as a target rate of diversity. At the current pace, that target rate would be achieved by 2024. While there have been a few gains for some demographic groups, advancement still isn’t representative of the broad demographic transformations that have been seen in the United States population over the same period.
Boards’ efforts to diversify their representation comes as large investor groups have been pushing for greater diversity among board members. ABD’s study found that women held 22.4% of the seats on Fortune 500 company boards in 2018, up from 15.7% in 2004 and 20.2% in 2016. And minorities held 16.1% of the seats on Fortune 500 company boards in 2018, up from 12.8% in 2004 and 14.4% in 2016.
In 2018, minority-held seats included:
- 6% African American,
- 7% Asian or Pacific Islander, and
- 8% Hispanic or Latino.
There’s some overlap between these groups. For example, female minorities held 4.6% of the seats of Fortune 500 company board seats in 2018. So, women and minorities held 34% of Fortune 500 board seats in 2018. However, women and minorities chaired (led) less than 10% of Fortune 500 company boards in 2018.
In addition to increased gender, race and ethnic diversity, boards want greater diversity in board professional skills and experience. Top priorities include accounting, digital or technology strategy, cybersecurity, and information technology. Other types of professional experience, such as marketing and HR, also could contribute to diversity.
Focus on women
Corporate research firm Equilar published a separate report in March that focused exclusively on women in corporate boardrooms. It found that women held 18.5% of the board seats of companies in the Russell 3000 Index in the fourth quarter of 2018, compared to 18% in the previous quarter.
Equilar’s report estimates that, at the current rate of growth of women on boards, gender parity would be achieved by 2034 by companies in the Russell 3000. This is significant progress from analyses Equilar conducted in 2016 and 2017, when parity was expected to be achieved in 2055 and 2048, respectively.
How diverse is your C-suite?
Management diversity is beneficial to companies of all sizes and industry groups. “Diversity of thoughts diminishes the extent of group thinking, and diversity of relevant skills (for example, industry or financial reporting expertise) enhances the audit committee’s ability to monitor financial reporting,” said SEC Chief Accountant Wesley Bricker in a recent speech at the University of Tennessee in Knoxville.
Though significant inroads have been made, many companies aren’t taking full advantage of the diversity on their management teams. Whether your business is a large public company, a small privately held one or somewhere in between, making diversity a priority when building project teams, recruiting new managers or board members, and training your existing staff can produce significant benefits.