MAY 1, 2019
Talk of Board Diversity Not Matched by Action
For all the talk of getting boards of directors to diversify the composition of who serves on them, not much is changing.
According to a review of SEC filings made in 2018, half of the companies in the Russell 3000 and 43% of those in the S&P 500 reported no changes to their boards, The Conference Board reported.
Just one in four boards added a director who previously never served on a public board. As the report put it: “Director retirement seems to be the only relevant factor dictating the pace of change and, when a replacement happens, it rarely affects more than one board seat in a single year.”
In the S&P 500, female directors are 22.5% of the total, an increase from 19.3% in 2016; the share of female directors in the Russell 3000 is much lower at 16.4%, an increase from 14.1% in 2016.
No one serving on a board represented in either index is under age 30, and only 0.3% of those in the Russell 3000 are under age 36. The median age for the Russell 3000 is 63; it’s 64 for the S&P 500.
Part of the reason is that directors are serving, on average, more than 10 years, with about 25% serving at least 15 years. Because there are no mandatory term limits on board tenure in the U.S. or Canada--as there is in other countries--and because there are just two states with board gender quotas, there is little in the way of consequences for companies that don’t act, said Richard LeBlanc, a teacher, researcher, consultant and expert on board governance.
“In short, there is no ‘stick’ to counter self-serving directors who overboard, or refuse to step down,” he said, adding there are no mandatory director performance evaluations, or proxy access.
There is no relationship between the number of boards you serve on, or the length of tenure, and effectiveness--in fact, the opposite is true, he said. “There are plenty of candidates who are qualified, but are being blocked by entrenched boards and directors,” said LeBlanc. “There is no reason to believe, absent the above changes, that the status quo will not continue.”
LRN’s David Greenberg, who serves on the board of publicly traded company International Seaways Inc., said he is not surprised the pace of change is so slow, given the competing needs and pressures that drive decisions around what kinds of expertise boards need.
Greenberg authored a study for LRN that found a big need for leadership in the boardroom on oversight of integrity and behavior. Boards also have historically reverted to choosing directors from the ranks of chief executives and finance chiefs.
“Until the composition of that group changes, the change in diverse directors will lag behind,” he said. “I do think more external pressure of all kinds--from government, from political leaders, from institutional investors, and from consumers--will continue to drive change.”
That said, Greenberg added a higher proportion of directors are from diverse backgrounds, with different skills, than was seen in the past, so he feels as though there are opportunities for people without board experience to get on a board.
“Every director was a new director when they got their first public board appointment,” he said.