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Board Diversity Snapshot

Six Recommendations for Becoming a More Diverse and Inclusive Board

With renewed attention to racial inequity, more and more companies are announcing initiatives aimed at promoting diversity and inclusion in the boardroom.

While driving gender diversity has been a major focus for boards in recent years — the share of women joining S&P 500 boards has more than doubled in the past 10 years — progress has been much slower for people of color. Between 2010 and 2020, female representation among new S&P 500 directors grew from 21% to 47%; over that same period, new minority director representation increased by just 10 percentage points to 22% in 2020 — attaining the same level of representation women reached 10 years ago.

We believe boards will face growing pressure to prioritize minority recruiting in the coming year. The pressure is coming from several fronts.

Investors and legislators are increasing their attention to board racial and ethnic diversity. State Street Global Advisors said it expects companies to disclose their goals and strategy related to the racial and ethnic diversity of the board, including how the board reflects the diversity of the company’s workforce, community, customers and other key stakeholders. The New York City Comptroller’s office is asking companies to require consideration of both women and people of color for every open board seat. Lawsuits have been filed alleging boards deceived stockholders and the market by repeatedly making false assertions about the company’s commitment to diversity and inclusion at the same time their boards lack directors of color.

Some states also are passing legislation to advance racial/ethnic diversity in the boardroom. California-headquartered public companies must have at least one director from an underrepresented community by the end of 2021 and up to three depending on board size by the end of 2022, while Illinois-based public companies must disclose board diversity stats and practices for promoting DE&I in boardroom.

In contrast to gender diversity, assessing the racial/ethnic composition of U.S. boardrooms is challenging and imperfect at best. Current rules do not require companies to disclose the self-identified racial/ethnic attributes of individual directors or the full board, but expectations for greater transparency are growing. Institutional Shareholder Services (ISS), for example, is seeking details of the self-identified race/ethnicity of each director, and State Street is asking boards to disclose their diversity characteristics, including directors’ racial and ethnic makeup. Pressure for change will continue to intensify.

This year, 123 companies in the S&P 500 included a statement in their proxy committing to considering diversity when recruiting new directors. However, with new independent directors representing just 8% of all S&P 500 directors, few board seats turn over in a given year, impeding meaningful year-over-year change. Further progress is likely to take time.