Making Today’s Boards More Racially and Ethnically Diverse: Recent Research and Next Steps

Mary Oyerly

With social unrest in the United States, increased focus on ESG’s “S,” and the rise of diversity, equity and inclusion (DEI) initiatives worldwide, one would expect corporate boards to more closely match the racial and ethnic makeup of the customers and communities that corporations serve — or at least reflect marked progress toward this goal.

Neither is the case, unfortunately. According to data from the Spencer Stuart 2022 S&P 500 Board Diversity Snapshot, the percentage of S&P 500 directors from underrepresented racial/ethnic groups is currently 22% — up a miniscule 1% from 21% in 2021.

Diligent examined these statistics and possible reasons behind this stagnation in its 2022 Global Modern Leadership Report. Highlights follow.

Statistics That Are Stagnant, Skewed and Incomplete  

Board diversity statistics today are even more discouraging when broken down by ethnic group:

  • 11% Black/African American
  • 5% Hispanic/Latino(a)
  • 6% Asian
  • Less than 1% American Indian/Alaskan Native, Native Hawaiian/Pacific Islander, or multiracial, respectively

These numbers not only make for grim reading — they’re skewed and incomplete. Many racial/ethnicity disclosures are voluntary rather than mandatory, so the companies detailing the racial and ethnic makeup of their boards tend to follow more progressive policies and have made measurable progress in meeting their goals.

Furthermore, unlike data for gender or skills diversity, the data for racial and ethnic diversity isn’t collected in a consistent fashion and often not collected at all. In fact, only 23% of the S&P 500 and 10% of the Russell 3000 records the ethnicity of individual directors. In continental Europe, few companies collect and disclose data on boards’ race and ethnicity or LGBTQ+ status.                        

The few areas with useable data indicate more areas for improvement. One trend is similar to what’s happening with gender. Boards are tapping a small pool of ethnically/racially diverse board candidates rather than broadening the overall pipeline with fresh faces. Over 40% of Black/African American directors served on multiple Fortune 500 boards.

Furthermore, while racially and ethnically diverse board members are serving on multiple boards, disproportionately few of these positions are leadership roles. Among S&P 500 companies, only 9% of independent board chairs and 10% of lead directors came from underrepresented racial or ethnic groups.

Multiple Contributing, Complicating and Contrarian Factors 

So, what’s behind this stagnation — a lack of visibility into the data? A reversion to a “safer” status quo of white leadership during COVID-19 and its uncertainties?

In 2020, Harvard Business Review explored why so few boards have Black directors. Contributing factors ran the gamut, from recruitment and onboarding to “access to board leadership roles, and board dynamics in which Black directors — and women in particular — report that their contributions are ignored or undermined.”

Barriers to diversity begin with candidate pipelines and sourcing.

“In boards of directors, people tend to go to people that they’re familiar with [and] have grown to know and trust,” Carnival Corporation CEO and Bank of America director Arnold Donald said in an interview with Black Enterprise. “Often, people don’t have very diverse circles of people that have that level of trust and confidence.”

Encouragingly, the research in our report indicates some improvement in this area: 39% of directors said they had difficulty finding qualified candidates to meet their boards’ diversity needs, compared to 57% 10 years ago.

Less encouragingly, views linking board diversity to shareholder value appear to be going in the opposite direction. Only 59% of directors we polled in July 2022 linked board diversity to shareholder value — far lower than the 80% in a similar poll in 2012.

Board Diversity Is Good for Business — and the Investment Community Knows It

There is strong evidence to support the diversity/prosperity connection. Research by McKinsey has shown an increasing correlation between boards in the top quartile for diversity, both gender and ethnic diversity, and “financial outperformance.” And in a study by Board Ready, companies with 30% or more board seats filled by non-white directors saw their revenues grow while companies with fewer than 30% of seats held by non-white members saw revenue growth drop.

How, then, can the business world — and individual boards — move the needle?

By linking diversity disclosures and action to real-world, bottom-line repercussions. As of August 2021, the SEC approved rules requiring Nasdaq-listed companies to have at least two diverse directors. At least one must be a woman and one from an underrepresented minority or someone who self-identifies as LGBTQ+. If not, they must explain why.

Meanwhile, among institutional advisors and investors:

  • Glass Lewis assesses companies’ racial/ethnic and gender diversity disclosures and policies, including board recruitment
  • Institutional Shareholder Services (ISS) recommends that shareholders take action against Russell 3000 or S&P 1500 companies who lack women or racially or ethnically diverse members
  • BlackRock, State Street Global Advisors and Vanguard advocate for board diversity through their proxy voting policies and stewardship activities

Publicly traded companies appear to be feeling the heat of such scrutiny. For S&P 500 boards, 46% of appointed directors in 2022 so far come from an underrepresented racial or ethnic background. In the UK, 89 of the FTSE 100 reported at least one board member from a racial minority at the end of 2021.

Moving the Needle Through Systemic Change and Individual Actions

How can all boards, publicly traded and otherwise, put themselves on the right side of this scrutiny — and history? A June 2022 article in the Harvard Law Forum for Corporate Governance recommends several actions, from reassessing qualifications to expanding the overall number of board seats.

Other experts recommend applying rigor to the process through objective qualifications and assessments and forward-thinking policy-making. And as these procedural changes take root, individual board members can make a big difference, especially in the areas of candidate sourcing, recommendations and pipeline development.

Peggy Alford, who became the second African American board member for Facebook Inc. (now Meta) in May 2019, notes that:

“After you serve on a board, more companies learn about you and demonstrate an interest in talking to you about available opportunities that you may not have the capacity to consider, which creates an opportunity to recommend other equally qualified candidates.”

In another example, when Reddit co-founder and executive chairman Alexis Ohanian stepped down, he urged the board to fill his seat with a Black candidate. Soon after, Reddit appointed its first Black board member: Y Combinator CEO Michael Seibel.

Download the 2022 Diligent Global Leadership Report.

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