Audit firm Deloitte and the Alliance for Board Diversity have just released the Missing Pieces Report: The Board Diversity Census of Women and Minorities on Fortune 500 Boards, a study examining the representation of women and racial/ethnic minorities (including Black, Asian/Pacific Islander and Hispanic persons) on public company boards among the Fortune 100 and Fortune 500 companies. The analysis of the Fortune 100 began in 2004 and the Fortune 500 in 2010, based on public filings reviewed through the end of June 2020. The Report finds that the rate of change has been quite slow, espcially for some demographic groups. It remains to be seen whether the social unrest roiling the U.S. body politic—which has brought systemic racial inequity and injustice, exacerbated by the pandemic, into sharp focus—together with actions to mandate or encourage board diversity, such as California’s AB 979 or, if approved, the Nasdaq board diversity proposal, will accelerate the rate of change evidenced in the Report.
California has adopted two board diversity statutes. The first, SB 826 requires that publicly held companies (defined as corporations listed on major U.S. stock exchanges) with principal executive offices located in California, no matter where they are incorporated, include minimum numbers of women on their boards of directors. Under the law, each of these publicly held companies was required to have a minimum of one woman on its board of directors by the close of 2019. That minimum increases to two by December 31, 2021, if the corporation has five directors, and to three women directors if the corporation has six or more directors (see this PubCo post).
AB 979 requires, no later than the close of 2021, that a “publicly held corporation” (defined as above), have a minimum of one director from an underrepresented community. A director from an “underrepresented community” means a director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender. No later than the close of 2022, a corporation with more than four but fewer than nine directors will be required to have a minimum of two directors from underrepresented communities, and a corporation with nine or more directors will need to have a minimum of three directors from underrepresented communities (see this PubCo post).
Late last year, Nasdaq filed with the SEC a proposal for new listing rules regarding board diversity and disclosure. The new listing rules would adopt a “comply or explain” mandate for board diversity for most listed companies. The Nasdaq proposal set a “recommended objective” for Nasdaq-listed companies to have at least two diverse directors on their boards; if they did not meet that objective, they would need to explain their rationale for not doing so. The rule would also require listed companies to provide annually, in a board diversity matrix format, statistical information regarding the company’s board of directors related to the directors’ self-identified gender, race and self-identification as LGBTQ+. (See this PubCo post.) In March, in response to public comments, Nasdaq amended its proposal to, among other things, provide that companies with five or fewer directors may satisfy the recommended objective with one director from a diverse background rather than two and to provide a one-year grace period in the event a vacancy on the board brings a company under the recommended diversity objective. The SEC has just extended the time for consideration of the proposal, designating August 8, 2021, as the date by which it will either approve or disapprove the proposed rule change. (See this PubCo post.)
The Report observes that, among the Fortune 500, more progress in diverse board representation was made between 2016 and 2020 than between 2010 and 2016. Nevertheless, the Report concludes that, while “there have been a few gains in board representation for some demographic groups, advancement is still very incremental, with goals of achieving proportional representation to the presence of women and minorities in the US population sometimes multiple decades away at current rates of change.” According to one commentator cited in the Report, the slow progress demonstrated will improve only “when companies set intentional targets for gender and underrepresented groups on boards. A diverse and inclusive board comes from breaking the habit of relying on the usual candidates, and tapping into various networks to identify board-ready candidates. Without this effort, companies risk falling behind in having a board positioned to address complex challenges.”
Below are some of the findings from the Report:
For the “Black Corporate Directors Time Capsule Project,” Barry Lawson Williams, a retired director, interviewed 50 seasoned Black directors. Illustrating the point of the high recycle rate for Black directors above, Williams himself has served on 14 corporate boards; the 50 directors he interviewed served on an aggregate of 274 corporate boards in their careers, and over 60% of the directors had served on five or more boards. (See this PubCo post.)
Here’s some related news from the Fortune 500: according to Fortune, in 2021, there were 41 women (8.1%) who were CEOs of businesses on the Fortune 500—up from 37 last year and an all-time record. By comparison, in 2000, there only two women on that list. Among the 41, for the first time, there were two Black women—only the second and third Black women to run Fortune 500 businesses—and one woman running the fourth-ranked business, the highest-ranking business ever run by a woman CEO. The article suggests that, “[t]aken together, these three jobs seem to reflect a change in who America’s largest businesses are choosing to put in charge.” The list of 41 also included the first women to run a major Wall Street bank. All four of these women succeeded males CEOs. According to one commentator, “[w]e’re seeing more intentionality. We’re seeing a focus on women of color. And we’re seeing a recognition that diversity and women in leadership is even more important.”