Boards Eager to Promote Their Increased Diversity
The image of corporate boardrooms as dominated by old, white men is a common one, driven by the historical reality of a general lack of diversity in the highest levels of corporate management. But even as casual observers assume this lack of diversity, the actual numbers haven’t traditionally been readily apparent. Companies have either not put a great deal of thought into publicizing the diversity of their boards or have actively tried to conceal that data.
New Levels of Transparency Among Corporate Boards
That seems to be changing, however, and changing rapidly, as can be seen in recent developments among companies included in major U.S. stock exchanges. “On August 6, 2021, the U.S. Securities and Exchange Commission approved a December 1, 2020 proposal submitted by The Nasdaq Stock Market LLC to adopt listing rules related to enhancing corporate board diversity (the “Board Diversity Proposal”) and offering certain listed companies access to a complimentary board recruiting service to help advance diversity on company boards (the “Board Recruiting Service Proposal”),” explains the law firm Barker Botts. “The new rules are intended to provide a disclosure-based framework for Nasdaq-listed companies that may impact and inform investors’ investment and voting decisions.”
But just as Nasdaq is prodding its members to be more transparent with their board diversity, companies in another major exchange – the S&P 500 – are doing so of their own accord in record numbers. In 2020, only 24 percent of the S&P 500 disclosed the racial composition of their boards in 2020, according to The Conference Board. In 2021, that figure jumped up to 59 percent a new analysis published by The Conference Board and ESG data analytics firm ESGAUGE. On yet another exchange, the Russell 3000, the rate of disclosure more than tripled, from 7.7 percent in 2020 to 26.9 percent in 2021.
Change Still Moving at a Slow Pace, Though
“However, the rate of change is much lower when it comes to racial and ethnic diversity,” says The Conference Board. “According to Russell 3000 disclosure documents, the percentage of African Americans in the new director population was 11.3 percent for the class elected in 2020 and rose only to 11.5 percent for the class elected in 2021. Latinos were 6 percent of the 2020 class and 6.5 percent in 2021, while Asian, Hawaiian, or Pacific Islander directors went from 2.9 percent to 3.1 percent. Of the 2021 class of new directors, 78.3 percent were white.”
Corporate boards have long been seen as homogeneous cliques of older, white men, and a general lack of transparency into their membership has only furthered that impression. Increasingly, however, companies traded on some of the country’s largest stock exchanges are pulling the back the curtain as part of a broader effort to increase representation of women and minorities.
It’s long past time, and it’s long overdue—not just because it’s the “right” thing to do societally as we’ve often stressed (although it is…), but because it’s a business imperative. We can’t seek to sell to those we don’t understand. We can’t seek to understand those we don’t seek input and viewpoints from.
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