Actions and Initiatives to Increase Board Diversity
By Janet S. Wong and Buck Gee

Despite the fanfare around diversity, equity and inclusion (DEI), the corporate boardroom remains one of the least diverse environments in America. From 2010 to 2018, the representation of people of color on corporate boards increased from 12.8% to just 16.1%, an annual growth rate of less than half a percent, according to the Alliance for Board Diversity.

Some states, such as California, are getting involved with legislation to increase diversity on public company boards. In July, Assemblyman Chris Holden introduced legislation to amend the state’s Corporations Code, which currently requires public corporations with executive offices in California to have a minimum number of female directors on their boards, to also include comparable requirements for underrepresented communities (URC). At the end of September, California Gov. Gavin Newsom signed the bill into law.

The legislation requires that, by the end of 2021, public corporations have a minimum of one director from an URC on its board. It also requires that, by the end of 2022, those corporations with boards with four or fewer members have one member from a URC, those with fewer than nine members have two members from a URC, and those with nine or more have three members from a URC. An individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native or as gay, lesbian, bisexual or transgender is considered to be from a URC, according to the legislation.

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The impact of the legislation will be dramatic. Our review of 110 corporations listed in the Fortune 1000 with headquarters in California found that only 159 of the total 1,106 directors (14%) were from URC. Full compliance by Fortune 1000 corporations could potentially increase URC board participation to 29%.

Although 28 corporations are already in full compliance, including notable corporate giants such as Google, HP, Walt Disney and Wells Fargo, the remaining corporations in the Fortune 1000 would need to double URC representation with over 160 new directors. Although some may argue that it would be difficult to find such a large number of capable directors from URCs, we believe there is an ample supply of highly qualified director candidates from the pool of more than 28,000 minority executives in California and more than 126,000 nationally.

As directors of public companies, we can take action by raising the question of board diversity in our own boardrooms and with colleagues and other stakeholders. The Diverse Corporate Directors Coalition (DCDC) recently released a groundbreaking call to action for public boards to bring DEI to the corporate boardroom. Its call to action provides specific and actionable recommendations that will help bring meaningful change across America’s boardrooms so they reflect the diversity of our nation.

The DCDC is composed of representatives from the leading associations that support diverse corporate directors: Ascend Pinnacle, the Black Corporate Directors Conference, the Latino Corporate Directors Association, Out Leadership and the WomenCorporateDirectors Foundation.

The DCDC’s recommendations for all corporate boards include adopting an updated “Rooney Rule,” with at least 50% of the board’s director candidates coming from underrepresented groups that are not currently on the board. It is not meant to be a quota, but a way for boards to open the door and give diverse candidates a chance to compete.

Another recommendation is to “de-bias” the search criteria. For example, the search criteria for every single board seat need not require that the candidate be a CEO, COO or CFO. There is ample diverse talent that may have other C-suite roles or come from different backgrounds, such as government or the military, that can bring valuable perspectives as well as diversity to the boardroom. Whether a search firm is involved or not, companies should leverage resources with access to diverse networks and databases, such as the member organizations of the DCDC that with their combined membership have a supply of diverse, experienced directors and board-qualified executives.

The DCDC also recommends that companies accept accountability and report and disclose their board’s composition in their proxy and other applicable SEC filings. There has been an increased call for disclosure by congressional leaders, institutional investors, ISS, the U.S. Chamber of Commerce and other industry groups.

This is the time for companies to demonstrate their commitment to diversity, equity and inclusion by accepting accountability and taking positive actions so that DEI is more than just words. Greater board diversity will enable companies to accomplish meaningful change that supports board effectiveness and business performance.

Janet S. Wong serves on the boards of Lumentum, Enviva Partners and Allegiance Bancshares. She is an executive adviser for Ascend and represents Ascend Pinnacle on the DCDC. Buck Gee was a vice president and general manager at Cisco Systems. He is an executive adviser for Ascend.


Issue: 
2020 Fourth Quarter

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