According to a new study by Corporate Board Member magazine and Spencer Stuart, a leading executive search firm, diversity is becoming a more significant concern for corporate board directors in the US. The vast majority of respondents (79.9%) said they feel that diversity in the boardroom results in increased shareholder value. Nevertheless, even more (88.7%) said shareholders have not approached their company in the past three years about the issue – meaning most shareholders have not had much impact on diversity in the boardroom.
The study also showed that while most board members don’t want to see diversity regulated – through quotas or other measures – about a third of respondents said it may have to come to that.
TK Kerstetter, president of Corporate Board Member, explained, “Research consistently shows that U.S. companies don’t want or think that board diversity quotas implemented in several European countries are needed. I worry that if more companies don’t embrace this inevitable social change of having company workforces and boards more closely resemble the markets and customers they serve, then we’re likely to see increased pressure for a mandated change.”
The study shows that while many directors cite diversity as a concern, most boards are slow to take action on the topic.
Attitudes toward Regulation
According to the survey, which polled 697 directors on the Corporate Board Member Research Panel and 1,850 Governance/Nominating committee members and chairs of US public companies, boards are making slow progress on implementing policies that will increase their percentage of women or minorities.
Over half (58%) of board respondents said they think the SEC’s new rule requiring companies to disclose their diversity levels will help increase diversity.
On the other hand, only a tiny minority (1.1%) supported potential quota regulation at their company. Two thirds (6.7%) said they did not support quotas for board diversity, and about a third (32.2%) said they though quota regulations aren’t a good idea, but might be necessary if efforts to increase diversity don’t produce more results soon.
But, the study continues, boards (and companies themselves) are doing little to move past the basics when it comes to increasing the diversity of their composition. In fact, any action beyond using an executive search firm to find diverse candidates was uncommon.
Diversity Policy and Action
While half (50%) said they have a general policy on diversity, only one in five (20.3%) said they “have a board diversity policy that includes specific criteria and attributes needed to fulfill the needs of the board.”
But, many are taking action, whether they have a specific written policy or not. More than half (56.6%) said board diversity has been a topic on the meeting agenda. When it comes to searching for new director candidates, 42% said they require a diverse slate of candidates for every open seat, and 63% use search firms to find diverse candidates.
The top three most effective things boards have done to increase board diversity, according to directors, are “general board diversity policy” (25.4%), “diversity requirement for board seats” (22.4%), and “asking search firm to include diversity criteria” (27.6%). The top three most significant obstacles in hiring board directors identified by current board members are “other qualifications more important than diversity” (30.4%), lack of qualified candidates (19.9%), and “lack of demonstrative proof of the benefit of a diverse board” (7.4%).
The study also recognized a turnover challenge – board directors are slow to leave boards, making it difficult to fill those spaces with diverse candidates. Julie Daum, co-leader Spencer Stuart North American Board & CEO Practice, confirmed, “Lack of turnover in the boardroom is a contributing problem.”
There is also a lack of pipeline training for home-grown director candidates. Only 19% said their CEO CEO works to identify senior executive diverse candidates internally, and even fewer (6.5%) said their companies have a program in which diverse candidates from within the company are mentored by current board members.