Pressure from institutional investors on public companies to include more women on their Boards and to hire more women in top management positions has been mounting. That pressure began long before the #MeToo movement came to the fore. But the mandate for more diversity is, in theory at least, supposed to include minorities too. But, as of now, the hiring of racially diverse C-level executives and the appointment of more ethnic minorities on company boards still lags woefully behind the hiring of women, according to a recent report from executive search and leadership consulting firm, Spencer Stuart.
Institutional investors, most prominently in California, New York and Massachusetts, and the behemoth money managers BlackRock, State Street Global Advisors and Vanguard, have been taking active steps to force change. To their credit, BlackRock and the New York City pension funds consider Board diversity a fundamental element of Board quality and BlackRock has often used proxy votes to urge reform. It expects boards of companies in which it invests to include at least two women. In 2019, it will consider voting against directors of companies failing to meet a two-women-director minimum or show progress on the gender diversity front.
A Spencer Stuart survey report published last December, titled the Spencer Stuart US Board of Index found that of the 397 new independent director slots open in the 2017 proxy season, 36 percent went to women and just 20 percent to minorities, defined as African-American, Hispanic/Latino or Asian, representing a mere 81 individuals. Those figures actually represent an improvement on 2016, when just 15 percent of minorities—a total of 53 people—were hired as new independent directors and in 2008, when just 12% or 46 minorities were hired in those roles.
So, while the pressure to hire women continues—in 2017 State Street, one of the largest global investors, voted against the re-election of the chair or most senior member of the nominating and governance committee of 400 all-male boards—no such actions are being taken to put pressure on companies to invite minorities onto their boards.
According to the Spencer Stuart report, “continued low boardroom turnover is a hurdle to significant year-over-year change in the aggregate composition of S&P 500 boards. As a result, in spite of the record number of new female directors, representation of women on S&P 500 boards increased only incrementally to 22% of all directors, up from 21% in 2016 and 17% in 2012. Progress continues to be slow when it comes to minority representation at the top 200 S&P 500 companies. Today, 17% of directors of the top 200 companies are male or female minorities, up from 16% last year. Representation of African-Americans and Hispanics/Latinos in the top 200 boardrooms has not significantly changed over the past five to 10 years.”
But, as of now, the hiring of racially diverse C-level candidates and the appointment of more minorities on company boards still lags woefully behind the hiring of women, according to a recent report from executive search and leadership consulting firm, Spencer Stuart.
Switching the Lights on
A key way to shine more light on the issue would be for investors to demand the disclosure of this type of data. To that end, New York City pension funds have been pressing for more transparency on the disclosure front. The pension fund’s Boardroom Accountability Project 2.0 calls for the inclusion of gender and race/ethnicity details for each director detailed on any disclosed matrix. In the fall of 2017, Comptroller Scott Stringer and the NYC Pension Funds called on the boards of 151 U.S. companies to disclose the race and gender of their directors. At present, directors’ race and gender is rarely, if ever, released publicly. That may well be part of the problem—the lack of data and research.
Eve Ellis co-manages the Parity Portfolio, a fund with a gender-lens investment strategy run by The Matterhorn Group at Morgan Stanley, which focuses on impact investing. Only companies with at least three women board members are eligible to be included in the portfolio. “We started the strategy because clients said they wanted to invest more with their values, and at the same time we read the research that showed that there was a correlation between the number of women on a company’s board and the company’s financial strength. If that correlation had not been so well established then we would not have started the Parity Portfolio,” Ellis explained. The fund was started in 2013.
Still, the focus on gender may be the first stepping stone for the focus on racial diversity. Patricia Farrar-Rivas, CEO of Veris Wealth Partners in New York, a wealth management firm that specializes in impact investing for private foundations, noted that gender-lens investing has raised the bar for looking at racial diversity. “It’s the next step in the gender-lens discussion,” she asserted.