The Conference Board has just released a new report, Corporate Board Practices in the Russell 3000, S&P 500, and S&P MidCap 400: 2021 Edition, a primary focus of which is board diversity. According to the press release, the study is the "most current and comprehensive review of board composition, director demographics, and governance practices at US public companies."  Key to the study is that more companies are now actually disclosing the racial and ethnic composition of their boards (based on self-reporting by directors): companies providing data are up from 24% of the S&P 500 in 2020 to 59% in 2021, and from 7.7% of the Russell 3000 in 2020 to 26.9% in 2021. With regard to progress in board diversity, the data shows that women have made significant advances—on the Russell 3000 this year, women represented about 38% of this year's newly elected class of directors, bringing total representation of women on Russell 3000 boards to 24.4%, up from 21.9% in 2020.  However, boards have significant catching up to do when it comes to racial and ethnic diversity. Based on self-reported data, "boards remain overwhelmingly white," and, for 2021, the class of new directors was 78.3% white, with only 11.5% African-American, 6.5% Latinx/Hispanic and 3.1% Asian, Hawaiian or Pacific Islander.


One reason for progress for women directors may be that board gender diversity has had something of a head start, beginning with the adoption of the California board gender diversity statute in 2018, as well as early pressure from institutional investors.  Since State Street Global Advisors initiated its Fearless Girl campaign in 2017 (see this PubCo post), many other institutional investors have joined in. For example, in 2018, BlackRock announced that it expected, in addition to "other elements of diversity, see at least two women directors on every board." (See this PubCo post.) 

California has now 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).

The second, AB 979 adopted in late 2020, 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). Both of these statutes are facing legal challenges. (See this PubCo post.)

In August, the SEC approved Nasdaq's proposal for new listing rules regarding board diversity and disclosure. The new listing rules adopt a "comply or explain" mandate for board diversity for most listed companies. The Nasdaq rules 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 will need to explain their rationale for not doing so. However, companies with five or fewer directors may satisfy the recommended objective with one director from a diverse background rather than two. The rules also provide a one-year grace period in the event a vacancy on the board brings a company under the recommended diversity objective. The rules 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.) These rules have also been challenged. (See this PubCo post.)

Among companies that provided disclosure about race/ethnicity, the report found that, at S&P 500 companies, 76.4% of directors self-identified as white, 13.3% as African-American, 5.3% as Latinx/ Hispanic and 4.1% as Asian, Hawaiian or Pacific Islander. The percentages of Asian, Hawaiian or Pacific Islander directors were slightly higher among S&P MidCap 400 companies (5.3%) and Russell 3000 companies (4.9%), but the percentages of African-American directors were lower (9% and 10.9%, respectively). With regard to new directors, the S&P 500 reported the highest percentage of newly elected African-American directors (13.6%), compared to 11.5% among Russell 3000 companies and only 6.8% among the S&P MidCap 400.

The Conference Board predicts that, in light of the urgency of the racial justice movement, multiple stakeholders will continue to pressure companies to make board racial and ethnic diversity an "imperative." For example, the report notes, in 2020, the U.S. Chamber of Commerce and other trade organizations wrote to the Senate Banking Committee in support of a bill (a predecessor to the current Improving Corporate Governance Through Diversity Act of 2021, H.R. 1277) that would mandate proxy disclosure of self-identified race, ethnicity and gender of corporate board members and executive officers. The Board advocates that companies that still have non-diverse boards "make a clear, public commitment to change," including taking the following recommended steps:

  • "Revisit director performance assessment processes to ensure they promote skill renewal and the injection of new ideas and perspectives. Directors should appreciate the importance of maintaining diversity of tenures across the board and commit to a healthy rate of refreshment.
  • "Develop a multi-year board succession plan where the need for strategic skills and expertise is evaluated through the lens of diversity and inclusion. The long-term plan should include developing relationships with diverse junior executives who may one day become attractive director candidates for boards of other companies. Rather than an episodic exercise, director succession should align with an ongoing board development program and be rigorously informed by an emphasis on diversity.
  • "Investigate best practices on the integration of DEI metrics into senior executives' incentive plans....[S]etting DEI objectives can help to develop a diverse pool of senior managers who could one day aspire to become board nominees.
  • "Consider adopting a Board Diversity Matrix disclosure model that complies with the guidelines recently published by the NASDAQ Listing Center. [See this PubCo post and  this PubCo post.]
  • "Some commentators have observed that the new California law, other similar new state laws, and the NASDAQ listing rule have missed the opportunity to extend the notion of board diversity to executives with disabilities.... Boards of directors committed to a more diverse and inclusive leadership development and board recruitment program can remedy this omission."

With regard to board gender diversity, according to the report, "there is a direct correlation between company size and gender diversity in the boardroom, with the highest percentage of female directors concentrated among boards of larger companies." In addition, the percentage of boards with three, four or more women has increased "exponentially," with the result that, among the largest companies, there are more boards with three, four or more women than boards with one or two women. Based on proxy disclosure, in the S&P 500, the average percentage of women directors has increased from 20% in 2016 to 29.1% in 2021; for the Russell 3000, from 15% in 2016 to 24.4% in 2021; and, for the S&P MidCap 400, from 15.8% in 2016 to 26.7% in 2021. In addition, in 2016, about a quarter of companies in the S&P 500 had only one female director, but in 2021, that percentage declined to 2.8%. At the same time, in 2016, 23% of companies in the S&P 500 had three female directors and 9.7% had four, while in 2021, 36.3% had three women on board, 25.8% had four and 11.7% had more than four female directors in 2021. What's more, the percentage of women among new directors has grown substantially. For example, in the Russell 3000, the proportion of new directors who were women has almost doubled since 2016, from 22.1% to 37.8%.

Still, among companies in the Russell 3000, 4.2% have no women directors, with the health care sector showing the highest percentage (6.7%) of boards without any women. Again, size seems to play a major factor: "none of the largest manufacturing and nonfinancial services companies (with revenue of $25 billion or higher) and none of the largest financial services and real estate companies (with asset value of $100 billion and over) have all-male boards of directors. On the contrary, in the smallest manufacturing and nonfinancial services companies, with annual revenue under $100 million, 13.5 percent continue to have no female directors, and the share is even higher in financial services and real estate firms with asset values under $500 million, at 25 percent."

Although the data demonstrates substantial progress in gender diversity, nevertheless, "most new directors continue to be male." For example, according to the report, in the S&P MidCap 400, 61.4% of newly elected directors in 2021 were male, with similar statistics applicable to companies in the S&P 500 and Russell 3000. In addition, the vast majority of companies in the Russell 3000 and the S&P MidCap 400 (about 75%) as well as 66.7% of companies in the S&P 500 "elected no new female directors in 2021, while almost all of the remaining companies elected just one."

Nevertheless, the report proclaims that "the all-male board is fast becoming obsolete and the vast majority of corporate boards recognize the value of gender diversity." While the report advocates as the most effective route to diversity "a sound succession planning promote refreshment and the election of diverse candidates," companies may also look to other practices, such as "the model proposed by the Committee for Economic Development of The Conference Board (CED), where every other board seat vacated by a retiring board member is filled by a woman. In addition, directors could temporarily increase the size of the board, introduce (and adhere to) overboarding restrictions, and adopt guidelines on expected board tenure."


Why is board succession planning so critical? Some contend that "stale" is one reason that boards still tend to be "male and pale." With low board turnover, the opportunities for increasing board diversity are necessarily more limited.  As reported in the WSJ, a 2018 study from the Conference Board found that, for companies in the Russell 3000, "the average director stays in the job for 10.4 years and about a quarter of them step down only after 15 years. The upshot is that boardrooms remain the preserve of older, mostly white men: Only 10% of Russell 3000 directors are 50 or younger, while about one-fifth are older than 70...." And, when a board seat does become available, "it is often taken by a seasoned director rather than a newcomer with no prior board experience."  (See this PubCo post.)

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