Diversity Growing in Corporate America

Earlier this week we tweeted about the rise of women in the boardroom. The topic is pretty interesting to me so I figured this was a good place to share some views.

CFO recently reported that nearly one out of every three board nominees at Fortune 500 companies is a woman. According to a study from Institutional Shareholder Services, the number of women being tapped for board positions at the country’s largest companies has doubled in the last six years. Further, new board nominees at Russell 3000 companies were 22 percent female in 2014, again, doubling from 2008.

With board diversity a hot button among investors, it’s not altogether surprising that some companies are widening their approach to identifying new nominees. The Pax Ellevate Global Women’s Index Fund, which invests in companies with a high percentage of gender equality, names a few: Avon (not surprising), The Procter & Gamble Company (again, not that surprising) and Xerox Corporation (pretty surprising). Many would say, however, that it’s not enough. Several companies have been taken to task by activist investors (CalSTERS and CalPERS, for example) and media for maintaining homogenous boards amidst what seems to be growing support for diversity.

What evidence is there that diversity in the boardroom makes a positive difference? A blog post from the Harvard Law School Forum on Corporate Governance and Financial Regulation offers the following thoughts, among others:

• “Diverse boards engage in richer and ultimately more effective discussion and debate. People of diverse backgrounds bring different perspectives, experiences, concerns, and sensibilities to the boardroom.”
• “Directors of diverse backgrounds ensure that the perspectives and concerns of often-ignored constituencies are represented in board discussions.”
• “The presence of female and minority directors sends signals to various constituencies about a company’s values. Those constituencies include employees at all levels, customers, communities, regulators and other government actors, and the public.”
• “A company that does not have a diverse board is failing to tap into a significant part of the relevant talent pool, and is therefore likely to be less effective.”

For more tangible evidence, Business Insider reports that “Companies with women on the board crush companies that are only men.” Citing an older report by Credit Suisse, companies with market caps of more than $10 billion that have at least one woman on the board of directors, outperformed those with no women 26% from 2005 to 2011. A few years later a Thomson Reuters study revealed that the stocks of companies with mixed-gender boards have outperformed, on average, companies with no women on their boards.

Whether the evidence is empirical or anecdotal, I think we’d all agree that diversity – in all walks of life – is a good thing. My advice for any company is to broaden your search parameters, embrace variety and be a leader in effecting change. But, remember, diversity for diversity sake is not the best policy, so choose the best man (or woman) for the job.

— Laurie Berman, lberman@pondel.com