Here’s One Way to Diversify Your Boardroom

February 13, 2017 – This past year, boardroom diversity in Fortune 100 and Fortune 500 companies increased for women and certain minority groups, according to the ‘Missing Pieces Report: The 2016 Board Diversity Census of Women and Minorities on Fortune 500 Boards,’ a multiyear study published by the Alliance for Board Diversity (ABD), collaborating with Deloitte.

But minority men and women experienced only slight gains since the ABD first started tracking Fortune 500 board diversity in 2010, up from 12.8 percent in 2010 to 14.4 percent in 2016. The total number of board seats remained about the same during this time; there were 5,440 total board seats in the Fortune 500 in 2016, compared to 5,463 in 2010.

Currently, 65 percent of Fortune 100 boards have greater than 30 percent board diversity, compared to the Fortune 500 where that percentage shoots up to just under 50 percent of boards.

Key Findings

Here is a closer look at the report’s key findings:

• In 2016, fewer than 15 percent of all board seats in the Fortune 500 were held by minorities, including African Americans, Asian/Pacific Islanders and Hispanics/Latinos.

• Some progress has been made for African Americans in securing and holding Fortune 500 board seats, with the bulk of the African American male increases occurring within the Fortune 100. There has been an increase in the Fortune 500 of African American women board members by 18.4 percent, while the total number of African American male board members only increased by one percent. Tellingly, African Americans  appear to have the highest rate of individuals serving on multiple boards – indicating that companies are going to the same individuals rather than expanding the pool of African American candidates for board membership.

• Asian/Pacific Islanders have shown continued growth in percentage representation on Fortune 500 boards. However, their starting baseline was small – the overall representation of Asian/Pacific Islanders is only 3.1 percent, representing a total of 167 seats.

• Hispanic/Latino men picked up a nominal gain of eight board seats, while there was a loss of two Fortune 500 board seats for Hispanic/Latina women since 2012. Overall, Hispanic/Latino men and women hold 188 total board seats, or 3.5 percent of the total.

“The increase in boardroom diversity over the last four years is a small step in the right direction – but it’s equally important to note the larger context in which these gains were made,” said Ronald C. Parker, ABD chair and president and chief executive officer of The Executive Leadership Council.

“Almost 70 percent of board seats in the Fortune 500 are still held by white men,” he noted, “and at the current rate of progress, we won’t likely see the number of women and minorities increase to ABD’s target of 40 percent board representation until the year 2026.” This, he said, is not acceptable. “A great deal of work remains for corporate board composition to keep pace with the changing demographics of the country at large,” he concluded.

The report also includes data for the Fortune 100 – showing these companies lead the growth in boardroom diversity, outpacing the Fortune 500 with 35.9 percent of women and minorities holding board seats, compared with 30.8 percent in the Fortune 500.

Currently, 65 percent of Fortune 100 boards have greater than 30 percent board diversity, compared to just under 50 percent of Fortune 500 companies in the census. However, since the ABD began conducting its census of Fortune 100 board directors in 2004, collective gains for women and minorities have been minimal. In 2016, women and minorities held 35.9 percent of board seats in the Fortune 100, compared to 30.1 percent in 2010 and 28.8 percent in 2004.

Other findings include:

• Representation of minorities within the Fortune 500 is smaller than in the Fortune 100, where minorities held nearly 20 percent of board seats. Minority men have gained only 1.0 percent in the period 2004-16, and today 82.5 percent of total Fortune 100 seats are held by white individuals.

• While nearly 50 percent of Fortune 500 boards have reached at least 30 percent women and minorities on their boards, the “recycle rate” – or rate at which individuals serve on more than one board – is higher for women and minorities than white men, which indicates that while diversity on boards may be increasing, there needs to be a broader net cast to capture “new” women and minorities on boards. This rate also points to the need to look at a broader set of networks, backgrounds, skills and experiences in potential board candidates.

A Long Way to Go

While the census data shows overall gains for women and minorities in the boardroom, the pace at which Fortune 500 boards are becoming more diverse is slow. These boards and board members have an opportunity, according to the report. Diversity is beginning to be viewed through a much wider lens to encompass a range of skills, experiences, and perspectives that could help safeguard an organization against new and emerging threats.

It is also important for boards to be comprised of individuals that offer different perspectives in order to understand and better serve the diverse customer base that exists today. The fact that many companies are facing a growing number of competitive, regulatory, and technological issues is driving this broader view of diversity. It will be important for corporate boards to consider the benefits and skillsets that gender, racial, and ethnic diversity could bring to boardroom discussions.

Importance of Diversity On Boards

According to PwC’s 2016 ‘Annual Corporate Directors’ report, nearly all directors (96 percent) agree that diversity is important. But how important it is and how much it helps depends on whom you ask. Female directors have a much stronger opinion about the benefits of board diversity than male directors.

One issue in the debate is disagreement about whether there are qualified diverse board candidates to tap for director service. Virtually all female directors say there are sufficient numbers of such people, while only about two thirds of male directors say the same. A contributing factor cited by some is a lack of diversity in the C-suite, where many boards look for potential director candidates. So some boards are using public databases, many of which can highlight diverse candidates, in their search for new board members.

One of the main difficulties in adding diversity representation to corporate boards is that many boards look to current or former CEOs as potential director candidates. But only four percent of S&P 500 CEOs are female, according to a poll by Catalyst, and only one percent of the Fortune 500 CEOs are African American. 

So where can boards find qualified diverse candidates? PwC suggests that first the pool of potential director candidates needs to expand. And then boards will have to look in different places. There are often many untapped, highly qualified, and diverse candidates a few steps below the C-suite — people who drive strategies, run large segments of the business, and function like CEOs.

Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media