25 September 2020

Boardroom Diversity

Welcome back. If you’re rooting for diversity and haven’t seen the latest annual report by Heidrick & Struggles on corporate boards of directors, get set to cheer a little. There’s been some progress, especially regarding gender.

But a recently published study found that, while board diversity increased, women and minority directors are significantly less likely to serve in board leadership positions. That would be understandable if the women and minority directors didn’t possess stronger qualifications than the white male directors.

Example board of directors, 2019: Merrick & Company
(from www.merrick.com/about-us/leadership/).
Here’s where we are.

Board Membership Diversity Trends
Two reports show board membership diversity is heading in the right direction, though the pace may not win a prize.

According to the aforementioned Heidrick & Struggles’ 2020 annual report, women were chosen for 44% of open board seats in the U.S. in 2019; people of color were chosen for 23%, an increase from 13% in 2010.

A multiyear study published by the Alliance for Board Diversity in collaboration with Deloitte provides more perspective:
- Between 2012 and 2018, the number of Fortune 500 companies whose boards had more than 40% diversity doubled from 14% to 29%.
- Women and minorities made more progress in Fortune 500 board representation between 2016 and 2018 than between 2012 and 2016.
- Minority men on Fortune 100 company boards increased between 2016 to 2018 by nearly one percent, not a lot but almost as much as they gained in the 12 previous years.

Board Leadership Diversity Trends
To assess the diversity leadership gap, researchers affiliated with Delaware, South Carolina and Missouri universities studied 19,686 U.S. corporate board directors of 2,254 firms over the period from 2006 to 2017.

Percentages of directors (solid) and board leaders (dashed) that are women, 2006-2017 (from www.sciencedirect.com/science/article/abs/pii/S0304405X20300829).

They found that women and minority directors had more professional credentials, more extensive outside board and committee experience, and larger director networks than their white male counterparts. Nevertheless, the women and minority directors were significantly less likely to be appointed to board leadership positions as chairman of the board, lead director or chairman of one of the four major committees--audit, compensation, governance and nominating.

Percentages of directors (solid) and board leaders (dashed) that are minorities, 2006-2017 (from www.sciencedirect.com/science/article/abs/pii/S0304405X20300829).
With regard to specific experiences that affect the likelihood of being appointed to a leadership role, the researchers found a white male director with prior chairman or lead director experience was 10.5% more likely to be appointed as chairman or lead director. In contrast, a woman or minority director with the same experience was only 6.1% more likely to be chosen. Similar results were true for other experience measures.

Ruling out qualification differences, the researchers examined other possible reasons why women and minorities are less likely to serve as board leaders. Do they choose to serve on more boards rather than take leadership positions on fewer boards? Are they risk averse? Do they reside farther from the firm? Are they less effective in board leadership? Finding no evidence to support any other reason, they concluded that biases may at least partially explain the leadership gap.

Wrap Up
Diversity concerns have generally focused on the composition of corporate boards, and it’s clear that diversity is increasing. The pace may be slow, yet it has gained speed in recent years, particularly for women.

Unfortunately, the study found evidence of inequity even after women and minority directors join the board. The researchers suggest that firms wishing to mitigate the diversity leadership gap should publicly acknowledge their commitment to diversity and add women and minority directors to the board's nominating committee.

Stay tuned, and thanks for stopping by.

Heidrick & Struggles’ 2020 annual report: www.heidrick.com/Knowledge-Center/Publication/Board_Monitor_US_2020
Deloitte–Alliance for Board Diversity study: www2.deloitte.com/us/en/pages/center-for-board-effectiveness/articles/missing-pieces-fortune-500-board-diversity-study-2018.html
Study of board leadership positions in Journal of Financial Economics: www.sciencedirect.com/science/article/abs/pii/S0304405X20300829
Preprint of study report: papers.ssrn.com/sol3/papers.cfm?abstract_id=2810543
Article on study on EurekAlert! website: eurekalert.org/pub_releases/2020-09/uod-fdc091120.php

1 comment:

  1. I'd ask the question: Does the process for selection to Board leadership positions differ among corporations or is the one voting standard ? You might have guessed - I've never been on a corpoate board!