Greater diversity as new directors enter the boardroom in 2016
A scientist, a woman and a former government official walk into a boardroom… No, it isn’t the start of a bad joke, it’s the new Fortune 100 class of 2016 board directors. New research from the EY Center for Board Matters shows progress is being made when it comes to sourcing a diverse range of independent directors.
Examining an ‘entering class’ for the first time, EY looked at the independent directors who had been added to boards across Fortune 100 companies last year. Kellie Huennekens from the EY Center for Board Matters says the findings certainly threw up some surprises, with the number of companies refreshing their board by adding at least one new independent director making it to the top of her list. In fact, 60 percent of the surveyed firms added at least one new director following their 2015 annual meeting. ‘I don’t know what I was expecting but it certainly wasn’t a number that high,’ notes Huennekens. Even more surprising is that almost one fifth of the companies added three or more new independent directors.
These new directors also bring more diversity, with EY finding that almost 40 percent of the Fortune class of 2016 are women – compared with less than a quarter of incumbents and less than one fifth of outgoing directors. The new class is also younger and brings with it a wider range of backgrounds and expertise. For example, just 51 percent are former or current CEOs. Of the near 50 percent with a non-CEO background, 7 percent are former or current CFOs. Fourteen percent have a non-corporate background including science, academia, the military and government. EY also notes that 17 percent of the Fortune 100 entering class appear to be joining a public company board for the first time.
Part of this greater drive for diversity is down to the push from investors that over the years has grown to include more general diversity advocates, explains Huennekens. ‘There are now more stakeholders involved,’ she says. ‘There are more conversations happening.’
But companies should also get some credit, she adds: ‘We’re seeing the broader competitive environment for companies as much more challenging now. You’ve got massive waves of disruption, you’ve got a lot of change going on – whether it’s in terms of technology, definitions of industry, business models or worker demographics. How companies are operating fundamentally and how companies are competing with each other is changing so fast and across so many different areas that there’s a heightened awareness among companies and investors of the need for fresh perspective – particularly in the boardroom, given the board oversight role.’
This is driving a push to bring in more varied points of view. ‘There’s a real hard look at what skill-sets, what types of expertise – including what types of markets – are most critical for the board to have, both now and as it anticipates shifts in the business going forward,’ Huennekens notes.
When it comes to telling investors about the work they’re doing around board diversity, she says companies that are really good at disclosure do it very well, but ‘there are certainly opportunities to do more’ in terms of disclosure.
‘One of the things I found doing this research is that there are a number of firms with enhanced board diversity beyond gender but that it’s not necessarily disclosed,’ she explains. ‘I think if [companies] can provide that disclosure, investors would find it of interest. One of the challenges in the US is that this is data that’s not necessarily easy to come by, so there’s a lot of reliance on voluntary disclosure and the information is often different from company to company.’
Huennekens concludes by noting that many of these new executives are not necessarily coming from the C-suite but have specialized in certain areas and clearly have skills relevant to the companies they’ve joined. ‘It was interesting seeing scientists being added to boards,’ she says. ‘And I think what we’re seeing is a snapshot of the future.’