The shift was attributed to “the widespread racial justice protests that took place last summer.”
Financial institutions, including Goldman Sachs, BlackRock, and Nasdaq, were already under pressure to increase boardroom diversity prior to the protests, driven by a growing body of evidence showing that diverse leadership correlates with better business performance.
More than 600 publicly traded companies in California now have at least one female board member as a result of 2018 legislation, according to researchers at Clemson and the University of Arizona.
A better scenario, according to Ms. Akutagawa, is for companies to increase their diversity on their own, without external pressure. “However, results are only as good as their measurement.”
Experts, on the other hand, say significant change will take time. An eight-year term is the average length of a board director’s term, and the cost of adding additional seats can be prohibitive.
The search for directors outside of the “pond” may also be fruitless: In an effort to broaden their diversity, corporate boards have begun hiring directors from outside the C-suite, which is predominantly white and male.
It’s true that many companies do not allow their lower-level managers to join outside boards because of the time commitments and potential conflicts of interest, as reported by The New York Times’ DealBook column in February.
According to a Deloitte report, it will take decades for boardrooms to reflect the demographics of the American population if current trends continue.
It will take until 2046 for women of colour to make up 20 percent of Fortune 100 board seats, despite the fact that they make up 20 percent of the population in the United States.
Progress has been “painfully slow,” according to the authors of the report.
A Disappointing Lack of Diversity in Corporate Boardrooms
To this day, it astonishes me that we still have to stress the significance of boardroom diversity. While it’s necessary to consider diversity in a wide range of contexts (differences in thought, location, age, professional background, etc.), I refer to diversity in the narrower sense of gender and race.
While I agree that the word “board diversity” can have varying meanings, it is undeniable that the nation’s corporate boardrooms are woefully underrepresented by women and people of colour.
Many people think that a more diverse board is better for the company as a whole, especially in terms of financial performance, and that it also leads to better decision-making overall, which could boost the business’s success.
Evidence from a wide range of research shows that a more diverse boardroom is beneficial to businesses and their shareholders.
5 In fact, a study commissioned by CalPERS discovered that businesses with diverse boards outperformed those with less diverse boards. 6 According to a recent report titled Board Diversification Strategy:
Realizing Competitive Advantage and Shareowner Value, businesses that fail to include women and people of different ethnic backgrounds on their boards may fall behind in terms of both competitiveness and share value.
According to the data analysed, a subset of companies with a high diversity ratio on their boards of directors outperformed the Dow Jones and NASDAQ during a five-year period.
Despite these reports, women and people of colour continue to be grossly underrepresented in America’s business boardrooms. For instance, a 2008 report by the Alliance for Board Diversity indicated that among the boards of directors of the Fortune 100 corporations, white men made up 71.5% and women and people of colour made up only 28.5%. 7 The only silver lining to these otherwise dismal statistics is that women made up 39% of all new board appointments in 2009.
8 The 39% rise from the 25% of new board seats filled by women in 2008 is based on 165 of 424 board posts registered in 2009. 9 I’m crossing my fingers that this improvement isn’t just a one-off.
In the same vein, I congratulate shareholders who have made it their business to encourage board diversity as a means to protecting their own financial interests.
The California State Teachers’ Retirement System (CalSTRS) is only one organisation that has made diversity suggestions for board consideration. 10 Except for one, all were rescinded after the corporations revised their bylaws to include diversity as a criteria for selecting board members.
The proposals were abandoned in two instances when the firms had recently appointed a female board member. The corporation revised the charter of its Nominating and Corporate Governance Committee after the proposal failed once, to address the issues that had been raised.
No one should be surprised that many investors, from retail shareholders to large financial institutions, have asked the Commission to mandate disclosures about the diversity of corporate boards and a company’s policies related to board diversity in light of the apparent lack of diversity and the many studies indicating the real economic benefits of diverse boards.
For instance, the Commission received a large number of letters in 2003 demanding that the Commission mandate this disclosure, despite the fact that the Commission’s rulemaking on nominating committees did not include any reference to diversity.
Conclusion
Investors are becoming more concerned with the process of director appointments and the qualifications of the candidates. This is especially true as American companies compete in an increasingly globalised and multifaceted local market.
The capacity to draw on a diverse set of perspectives, backgrounds, talents, and experience is crucial to a company’s success in today’s increasingly competitive business world.
