On December 3, 2015, the United States Government Accountability Office (GAO) published its report analyzing the history of gender diversity of U.S. corporate boards and provided recommendations for improving female board representation. The report indicates that, following current trends, it could take 10 years for women to comprise 30% of board positions and more than 40 years for representation of women to be equal to men. In 2014, when the data was collected for the report, women comprised approximately half of the U.S. workforce, but only held approximately 16% of board seats of S&P 1500 companies, which represented an 8% increase from 1997. The report identifies three key factors that help to explain why female representation on boards has only grown incrementally in recent years. First, rather than prioritizing diversity, boards tend to rely on personal networks to identify potential new candidates for election. Second, boards often choose candidates from a "traditional pipeline," which includes former members of boards or those with CEO experience. To increase female candidacies for board positions, the report suggests that boards expand searches beyond the traditional pipeline, and perhaps set voluntary targets for diversity. Third, the report cites the relatively small number of vacant board seats that are open each year (only approximately 4% of board positions are filled by new directors each year).
In order to further improve female board representation, the report recommends that the Securities and Exchange Commission (the "SEC") amend its current regulations regarding disclosure of diversity statistics on corporate boards. Currently, the SEC only requires companies to disclose in filed proxy statements provided to investors any policy that the company employs with regard to board diversity and an assessment of the effectiveness of the policy. However, the SEC allows companies to define diversity in ways they deem appropriate. Therefore, many companies provide information about their directors' knowledge, skill and experience rather than gender, race and ethnic background. Many of the various stakeholders interviewed for the report support a recent investor petition to the SEC, which requests that these disclosure requirements be made more specific and requiring companies to provide investors information on the gender and racial diversity of board members. Most of the interviewees agreed that these changes could increase pressure on companies to diversify their boards, potentially leading to better decision making that more accurately reflects a company's employee and customer base.
A copy of the report is available at http://www.gao.gov/assets/680/674008.pdf.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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