Fewer Board Appointments; Diversity Efforts Slowing on Boardrooms in 2022

There were fewer appointments to Fortune 500 boards overall last year compared to the previous four years, according to a new report from Heidrick & Struggles. The profiles of the directors who joined these boards, meanwhile, show a revival of interest in previously prioritized areas of experience, Let’s take a closer look at what is happening in the boardrooms today!

March 27, 2023 – There were fewer board appointments in 2022 compared to 2021 across almost the same number of boards: 414 non-executive director appointments made on Fortune 500 boards in 2022, compared to 449 in 2021, according to the 2023 Board Monitor report from Heidrick & Struggles. The study, which analyzed Fortune 500 board appointments including representation by gender, race/ethnicity, and experience, found that 56 percent of companies appointed directors in 2022, only two percentage points less than the prior year, but those boards that did fill seats made fewer appointments than the prior year.

The Heidrick report found that the share of seats going to directors who are active in executive roles remained the same, at 62 percent, compared to 2021, underscoring a continued interest in current operational experience. There was also a drop in the share of seats going to directors with no prior public board experience, from a record 43 percent in 2021 to 32 percent in 2022, suggesting that when boards were filling seats, they more often wanted to be sure directors could hit the ground running.

The Board Monitor also found that first-time directors were, as in prior years, somewhat more diverse than the overall group—41 percent of seats allocated to first-time directors went to women and 35 percent went to racial or ethnic minorities—so the drop in their share of seats correlates directly with the overall drop in diversity. It is also notable that the share of seats going to first-time directors with CEO experience dropped from 24 percent in 2021 to 17 percent in 2022, suggesting that many companies are not encouraging their CEOs to take up non-executive board positions. In the longer run, this could open the door for boards to appoint first-time directors with a broader experience set, boosting the breadth of skill sets on any given board.

Continuing the previous year’s trend, 2022 saw an increase in the share of seats going to directors with CEO experience, according to the Heidrick report. Thirty-three percent of seats went to directors with other C-suite experience, suggesting that boards are still seeking to maintain a wide range of executive expertise. Aside from CEO and CFO experience, the most frequent types of executive backgrounds include president, head of division, COO, and CMO.

In terms of additional areas of expertise, 57 percent of seats went to directors with international experience, 25 percent to directors with experience on a sustainability committee, and 14 percent to those with cybersecurity acumen. Heidrick also found that boards sought fresh perspectives by continuing to show a preference for directors with cross-industry experience, with 77 percent of seats going to individuals with experience different than the industry of the board they were appointed to.

A Step Back for Gender and Racial or Ethnic Diversity

The Heidrick report also found that the share of seats going to women decreased by five percentage points, from a record 45 percent in 2021 to 40 percent in 2022. “This is part of a pattern of noticeable fluctuations in gender balance that started in 2018,” the search firm said. “The women who did gain seats in 2022 had backgrounds more similar to those of their male peers than earlier groups of female directors, as we saw for the first time last year. That said, there are functional areas such as marketing, legal, and HR where women still have a somewhat better representation than men. A separate analysis we have conducted of Fortune 100 companies’ executive teams shows that, aside from the DE&I function, these three are the functions with the highest women representation.”

The State of Gender Equity on Boards
In a new report, Russell Reynolds Associates examines the steps that countries are taking to encourage or mandate improved gender diversity in the boardroom. Among the countries observed: Japan, the U.S., Hong Kong, Australia, Brazil, and Germany. And in a fresh, new episode of “Talent Talks,” Georgina Pawley, partner EMEA at Beecher Reagan, discusses changes in diversity recruiting caused by COVID-19.

This is particularly notable because even temporary setbacks in gender balance can make it challenging to get back on track, according to the Heidrick report. “Despite the significant progress in the women directors appointed since 2017, the impact on overall gender balance has been steady but small,” the study said. The story is similar when it comes to racial and ethnic representation: The share of seats that went to directors who are racial or ethnic minorities decreased from 41 percent in 2021 to 34 percent in 2022, mostly driven by a nine-percentage-point drop in the share of seats going to black or African American directors.

The drop in the share of seats going to black or African American directors is notable compared to the highs of 2020 and 2021, at 28 percent and 26 percent, respectively. However, it is still higher than any of the 11 years prior to 2020.

“It will remain to be seen if this is part of a downward trend or a fluctuation pattern similar to that in gender balance is being established,” the Heidrick report said. “The share of seats going to Asian or Asian American and Hispanic or Latino directors has remained flat over the past four years—and Hispanic/Latino and Asian American women continue to be particularly underrepresented.” The fact that the Hispanic and Latino community represents 18 percent of the U.S. population but hasn’t seen a significant increase in representation in the 14 years since Heidrick started tracking the data shows that far more work needs to be done on equitable representation in this area. The firm notes that looking at the other main ethnicities in the U.S., the black community makes up 13 percent of the overall population and the Asian community makes up approximately six percent.

Related: How to Approach Strategic Board Succession Planning

Heidrick said it expects gender and racial and ethnic diversity on boards to remain a challenge, given the relatively low level of diversity in the pipeline of executives coming through the key roles that are most often stepping stones for a CEO or board role: CFO, COO, and head of division. The firm’s analysis of the executive teams of Fortune 100 companies, for example, showed that 20 percent are women and 20 percent are racial or ethnic minorities in these three roles combined. This was progress from 2020, when 16 percent were women and 12 percent racial or ethnic minorities, but it did not even include as much diversity as Heidrick saw added to boards in 2022.

Aligning Diversity and Talent in Board and C-Suite Recruitment
Achieving diversity must begin with proactive and intentional recruitment efforts. A recent report from BoardEx outlines strategic efforts to help executive recruiters and others realize D&I success at the board and C-suite levels.

The average age of the directors appointed in 2022 increased by two years compared to last year, from 57 to 59. Beyond the aggregate numbers, the share of seats going to directors who are 60 and above increased from 41 percent to 47 percent, and the share going to directors under 55 decreased from 34 percent to 29 percent. “This reinforces boards’ apparent quest for balance and experience, with many boards choosing directors with demonstrated leadership experience in managing through the aftermath of the global financial crisis and the ebb and flow of the intensely transformational period that followed,” the Heidrick report said.

Looking Forward

Today’s challenges, including managing current economic and geopolitical crises while continuing to focus on growth, make it tempting to revert to the more familiar CEO and CFO backgrounds, according to the Heidrick report. “Aside from broadening the talent pool for future board positions, it’s important that companies ramp up their focus on improving diversity in their executive leadership teams—particularly for roles that more often lead to CEO or board positions,” the study said. “That, in turn, will generate more robust conversations that are strategically crucial for success across a broad range of long-term strategic scenarios.”

In addition, Heidrick says that boards need to make sure that they build or maintain expertise to oversee longer-term organizational goals such as sustainable growth and inclusive cultures. “So it is critical that boards’ succession planning should return to including a better balance of backgrounds and a wider range of skill sets as well as ensuring board composition is representative of the communities in which the company operates—all in the context of strategic needs and not box-ticking,” the search firm said. “The fact that boards continue to seek a wide range of C-suite and cross-industry expertise is a bright spot, and one that boards can build on as they consider what they need now and for the future.”

Related: Women Still Lag on Boards and in the Executive Suite

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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