Issue link: https://digital.shearman.com/i/1162884
Shearman & Sterling LLP Turning up the Volume of Board Diversity | 27 Although, in July 2019, the only remaining all-male board among the S&P 500 appointed a woman, there are still 457 Russell 3000 companies with all-male boards. Women only represent 7% of independent board chairs. The number of ethnic minorities appointed to new Russell 3000 directorships fell from 14% in 2018 to 13.3% in 2019. Further adding to the slow pace of change in the number of ethnic minorities is the indicator that, among board members whose race was identified, non-white Russell 3000 directors crossed the 10% threshold for the first time in 2019, compared to approximately eight percent in 2008 — a growth of two percent in 11 years. When we expand the aperture beyond the S&P 500, however, we do not see comparable levels of representation. For the Russell 3000 companies, the percentage of women serving as directors rose slightly from 18.4% in 2018 to 19% in 2019. More women now lead in key committees, too. Women chair 24% of S&P 500 nominating and governance committees and 20% of audit committees. For the Top 100 Companies, women make up 28% of all directors. For S&P 500 boards, women make up 27% of all directors, representing a 56% increase over the past 11 years. 3 Of the 428 new directors appointed in 2018, women and minorities represented half of the class, with women representing 40%. There is also strength in numbers — in 2018, 87% of S&P 500 boards had two or more women directors, which is up from 22% in 2017. In addition, the number of S&P 500 ethnic minorities appointed to new directorships rose from 18.8% in 2018 to 21.1% in 2019. 4 THE NUMBERS How far has the needle moved in the past year? The data presents incremental, but positive, momentum in many areas. Although we are seeing year-over-year increases in representation and boards and are articulating the right message about the efforts they must take, for the most part, many commenters have said change is not happening fast enough. Some have taken the year-over-year increases in diverse representation on boards to extrapolate as to when, for example, gender parity in the boardroom will be achieved. These dates, which are way out on the horizon, have frustrated many advocating for the change to happen sooner. Shifting Definitions of Diversity We are all familiar with the SEC disclosure requirements related to board diversity under Item 407 of Regulation S-K that were adopted in 2009. Item 407 requires that a company's proxy statement disclose whether diversity is considered in evaluating candidates for the board and whether the company has a diversity policy. When the ASSESSING THE INFLUENCERS Increasing board diversity requires an assessment of the company's diversity strategy, adjusting board recruitment methodologies and consideration of how to thoughtfully engage with key shareholders and other stakeholders on the progress that is being made. SEC adopted the rule, it chose not to define "diversity," which has allowed companies to use their own definition. For many, that meant not specifically identifying gender, race, ethnicity or sexual orientation, but focusing on broader things like perspective, background and thought. The SEC's approach was deferential and broad, recognizing "any differences in the manner in which the nominating committee evaluates nominees for director." 5 Advocates from the start and investors more recently have all but rejected the lack of specificity that the SEC rule provides. For many advocates, it is clear that general notions like diversity of perspective will no longer be enough to meet their expectations for what a board should be looking for. 3 See 2018 United States Spencer Stuart Board Index. 4 See Institutional Shareholder Services, U.S. Board Diversity Trends in 2019 (May 31, 2019). 5 Regulation S-K, 17 C.F.R. 229.407(vi).