Diversity Rules Work (If You Follow Them)
A recent survey shows an increased percentage of diverse board members, but limited opportunity in leadership ranks.
If you are a fan of the NFL, you have probably heard of the Rooney Rule. But just in case your fandom of the NFL extends only to waking up on Sunday to watch the rather large men slam into each other at alarming rates of speed, here is an explanation of what it is: The Rooney Rule is a policy established by the NFL in 2003 — spurred on by then-Pittsburgh Steelers owner Dan Rooney — in an effort to give non-white individuals a chance to become head coaches in the world’s largest American football league. The rule requires teams to interview minority candidates for head coaching vacancies before settling upon the top man — and, yes, they’ve all been men — for the job. How has the Rooney Rule performed?
Well, to borrow a Mad Men quote from one of my favorite memes, “Not great, Bob.”
As it stands, in a 32-team league, there are only six non-white head coaches. Three of those individuals were hired just this year.
Anyway, some quick math finds that just 19% of coaches in the NFL are non-white. The percentage of non-white players in the NFL? According to an NBC News report, in 2021, 71% of the players in the NFL were people of color, with 25% white and 4% people whose ethnicities were not disclosed or specified. So, clearly, while some would argue that the rule has bolstered non-whites’ access to assistant coaching and general manager roles, the rule has failed to a great extent in achieving its number one goal: non-whites’ access to head coaching positions in the NFL. In other words, a rule works only as well as the people who are asked to follow it.
So, why am I writing about the NFL? Is it because my Philadelphia Eagles (knock on wood) are having such an incredible season? No. It is because, according to Spencer Stuart’s 2022 S&P 500 Board Diversity Snapshot report, S&P 500 boards are stepping up their use of policies like the Rooney Rule. According to the report, 50% of S&P 500 boards now have a policy to include individuals from underrepresented groups in the candidate pool when recruiting new directors, an increase from 39% in 2021. Is the public company boardroom’s version of the Rooney Rule serving better than the NFL’s?
Of the 395 independent directors added to S&P 500 boards during the 2022 proxy season, 46% are Black/African American, Asian, Hispanic/Latinx, American Indian/Alaska Native, Native Hawaiian/Pacific Islander or multiracial. That percentage represents a slight decline from 2021, during which 47% of new directors listed a non-white ethnic identity. A closer look at the numbers reveals some highs and lows, with 26% of all new directors identifying as Black/African American, a drop of seven percentage points from last year. However, the percentage of Asian and Hispanic/Latinx directors increased from 2021 to 2022, with 10% of new directors being Asian compared with 7% last year and 8% of debuting board members being Hispanic/Latinx, a slight uptick from last year’s 7%.
For the most part, the above numbers are signs of slight progress. But when you compare the ethnicities of corporate board directors with the ethnic makeup of the United States according to the 2020 Census, it becomes clear that there is much work to be done. As of 2022, 11% of the directors in the S&P 500 are Black/African American. That percentage is two points lower than the percentage of Black/African American residents in the United States. This dichotomy is most severe for Hispanic/Latinx people, who constitute 18.5% of the U.S. population but just 5% of S&P 500 directors.
If the Rooney Rule is about getting non-white coaches into the top spot in the coaching food chain, then its boardroom equivalent is most likely the board chair or lead independent director seat. With that in mind, it is clear that more progress must be made. In 2022, just 9% of S&P 500 boards have chairs from an underrepresented racial or ethnic group, while just 10% have non-white lead directors. The numbers are better, but not by a significant amount, in the area of committee leadership, with 14% of audit committees being chaired by a diverse individual and 15% of compensation committees being able to say the same. Nominating/governance committees proved to be the most likely to feature diversity at the helm, with 18% of chairs being non-white. While those numbers may not be impressive, all but the number of lead directors represent an improvement from 2021, a sign that when it comes to board diversity, baby steps may be the order of the day.
Returning to the amount of non-white coaches in the NFL and the fact that three non-white coaches were hired at the beginning of 2022 alone, what could have caused such a quick burst of diverse hiring activity? It could have been an instance of a policy stirring an uncharacteristic bit of success in a long slog. Or could it have been that on Feb. 1, 2022, Brian Flores, a Black coach who had been fired by the Miami Dolphins, filed a class-action lawsuit against the NFL alleging racial discrimination in hiring practices across the league? Black coaches Lovie Smith, Todd Bowles and Steve Wilks had their hirings announced on Feb. 6, March 30 and Oct. 10, 2022, respectively.
While I am not recommending the mobilization of any lawyers, let’s hope that for public company board members, the sunshine of board diversity reports being the best disinfectant results in diversity percentages climbing in the near to distant future.
Bill Hayes is managing editor of Directors & Boards.