Too Much Diversity Talk?

By Paula Loop
November 6, 2019

Study finds director interest in diversity may be fading.Photo by Pavan Trikutam on Unsplash

Board diversity has been a hot topic of governance conversation for years. But there has been a shift in the narrative as boards (slowly) become more diverse, and many directors seem to want to move on from the conversation.

The percentage of directors saying that “gender diversity on their boards is very important” went up six years in a row — before dropping in 2019. Our 2019 Annual Corporate Directors Survey showed that 38% of directors said having gender diversity on their boards was very important, down from 46% in 2018. The percentage also dropped for racial/ethnic diversity, going to 26% from 34%. It also showed a more drastic increase in the percentage of directors who say investors devote too much attention to the topic of board gender diversity: 63% this year from 35% a year ago. And there was a similar response with racial/ethnic diversity: 58%, up from 33%.

Does this mean that board support for diversity is fading? Not necessarily.

The respondents from our survey mirror the makeup of boards today. Of the 734 director respondents, 21% were female, while 26% of S&P 500 boards are. Every company in the S&P 500 now has at least one female director, and on average, boards have 2.8 female directors — up from 1.7 a decade ago. And 46% of new independent directors in the S&P 500 were female in 2019, up from a mere 17% in 2009. Boards are clearly functioning with some diversity today, and they know what is working and what isn’t.

Here’s the real question about diversity: Is it a positive in the boardroom?

Overwhelmingly, the answer is yes. So if you peel back the layers, directors aren’t actually saying they’re done with diversity. Instead, they seem to be saying they’re tired of hearing about it, and especially hearing about it from investors.

We know this because 94% of directors say board diversity brings unique perspectives to the boardroom, 87% say it enhances board performance and 84% say it improves relationships with investors — the people they may just be tired of hearing from. And interestingly, 76% say board diversity enhances company performance. All of these responses have been on a steady incline for the past several years, as well. More than ever, directors — both male and female — that have experienced diversity on their boards say it’s important. They also think gender and racial diversity are both very important to achieving diversity of thought in the boardroom, the survey found.

Directors have heard the diversity message loud and clear and have been doing something about it. They likely don’t need —  or want— investors to tell them about it anymore. Because they have other big things to tackle, like ESG, disruption, technological change and cybersecurity, to name a few.

But if you’re on a board that hasn’t caught up on diversity, you’re going to keep hearing the message. Investors will continue to remind you about it until you get moving on the journey. Based on what our survey is telling us, if you haven’t addressed and embraced board diversity, your board is probably not operating optimally — and your shareholders know it.

Paula Loop is the leader of PwC’s Governance Insights Center, which strives to strengthen the connection between directors, executive teams and investors by helping them navigate the evolving governance landscape.