As Diversity Grows, US Boards Remain Disproportionately White

NEW YORK

Amid pressure to make America’s boardrooms look more like corporate customers and employees, advocates are finally seeing just how daunting the task will be.

Boards of publicly traded American companies are much whiter and much less diverse than the general population, often in stark ways. For example, only 2.7% of directors at the start of the year were Hispanic. This should climb to 18.5% to reflect the US population.

Outside of looking at a picture of every director, measuring racial diversity on boards hasn’t always been easy. On Thursday, executive data firm Equilar released its first racial breakdown of the boards of companies in the Russell 3000 Index, which covers around 97% of all investable US stocks.

The survey found that only 6.2% of directors are black, compared to 13.4% nationwide. And the 5% of directors of Asian or Pacific Islander origin is also lower than the 6.1% for the entire American population.

Equilar pulled the numbers from a variety of sources, including company disclosures, affiliate network data, and lists of influential racial and ethnic minority leaders. Its results are similar to the disproportionate representation found in other surveys of smaller groups.

Executive search firm Heidrick & Struggles released its roundup of the boards of a smaller group of companies, those in the Fortune 500, earlier this week. It found that black directors hold 26% seats on the board, while Asian or Asian American directors had 9% and Hispanic directors held 6%.

Larger companies tend to have more diverse boards of directors than smaller companies. But more and more at all levels are being transparent about the racial breakdown of their board. A big reason for this is that they are forced into it, under pressure from exchanges, regulators and investors.

At Nasdaq, for example, U.S. securities regulators last summer approved a rule requiring companies listed on its U.S. stock exchange to file an annual document detailing the racial and ethnic origins of their directors, among other demographics. The Nasdaq even has a fillable PDF form to make it easier for companies to submit the data by Aug. 8 or whenever they file their 2022 proxy statement, whichever is later.

By August 7, 2023, the Nasdaq will require a publicly traded company to have at least one director who is considered “miscellaneous” or to explain why it is not.

Investors are making similar efforts, arguing that more diverse boards lead to more perspectives and better decision-making. They want boards to be more like their employees and clients, who are becoming increasingly diverse with the country’s trends, to better understand them.

“If you’re an investor, you’re looking for ways for companies to outperform,” said Ann Miletti, who is both chief diversity officer and head of active stocks at Allspring Global Investments. “We generally agree that the more diversity you have on your board, the better performance you will achieve in the long run.”

The push for more racial and ethnic diversity on corporate boards follows years of a primary focus on gender. Thursday’s figures from Equilar show how racially and ethnically minority women are among the least represented on corporate boards. Only 0.9% of US directors are Hispanic women, for example, half of the already low 1.8% for Hispanic men.

Some of the requirements to increase diversity met with strong resistance. California, for example, passed a law in 2020 requiring companies with main offices in the state to have a minimum number of directors from an underrepresented community. This includes people who identify as black, Hispanic, Asian, gay, lesbian, bisexual, or transgender.

Earlier this year, a California state court ruled the requirement unconstitutional following a claim that it violated California’s Equal Protection Clause. The judge wrote in his ruling that the state should have considered other options for achieving greater board diversity before imposing it.

Those requirements ended up increasing racial diversity on boards, but unevenly, said Vicki Bogan, a professor at Cornell University’s SC Johnson College of Business.

His research found that board nominations increased significantly for directors of Asian, Middle Eastern and North African descent after the California law was signed. But the number of nominations for black directors hasn’t changed. That’s likely because California companies were substituting applicants from the first group for the second to comply with the rule, she said.

Bogan said the 2020 killing of George Floyd had a bigger effect, especially for the appointment of black managers.

All American companies have shown an increased likelihood of appointing a black person to their board following the forced recognition of racism across America, she said. But companies that had no black directors had an even higher probability.

“I think it’s too early to say whether it’s temporary or not,” she said. “What I can share is that I hope that’s not the case. I hope we are on the right path to having more councils that are more representative of the population.”