The number of companies appointing a woman to their board in the US has more than doubled to 85 since July 2018, thanks to a campaign by the Thirty Percent Coalition’s institutional investor members that engaged 250 companies in the past year.
The coalition – whose campaign was called Adopt a Company and which represents more than a whopping $5 tn in assets under management – and the 85 companies appointing a woman to their board for the first time have clocked up a number of notable achievements in the past year:
- 16 companies appointed a second woman to their board
- 28 companies adopted public language committing to diversity in their governance documents
- 30 shareholder proposals were filed urging action and disclosure on board diversity – due to investors’ engagement leading to mutually agreeable outcomes with companies, 27 of the proposals were withdrawn. When resolutions did go to a vote, there was significant support by investors.
On the achievements, Thirty Percent Coalition executive director Charlotte Laurent-Ottomane tells IR Magazine: ‘Clearly the cumulative number of 275 companies that have appointed a woman to their board since the Thirty Percent Coalition’s Adopt a Company campaign began in 2012, most for the first time, is an achievement as well as highlighting identifiable results. Also, the coalition’s outreach to 250 companies each year and the investors’ subsequent engagement is further confirmation of the coalition’s dedication and determination to achieve gender diversity in senior leadership and the corporate boardroom.’
‘The coalition and its investors are finding that most companies are open to the discussion of increased disclosure and to adding diversity to their board,’ adds Laurent-Ottomane. ‘There is an agreement that good corporate governance and board diversity is a priority and yet an understanding that this is a complex process. The investors often give the company time to work through this process internally with a follow-up scheduled for a few months later.’
‘Investors believe portfolio companies can broaden their oversight perspectives by moving away from the same-industry CEO, and adding wider expertise along with gender, racial and ethnic diversity,’ says Mary Morris, co-chair of the coalition’s institutional investor committee and investment officer at CalSTRS. ‘Research and governance experts recommend that boards include members from disparate corporate and professional backgrounds, which may increase the long-term sustainable value of a company, as cited by many studies.’
Recently enacted California legislation, which requires any corporation with a principal executive office in California that has shares listed on a major US stock exchange to have at least one female director on its board by December 31, 2019, has had a positive impact on the results achieved with California companies.
The coalition’s institutional investor members say they will continue to engage with companies in which they invest to advocate for diversity of gender, race and ethnicity in the corporate boardroom and raise awareness of the ample pipeline of viable candidates. The focus continues to be on gender diversity with the rate of change accelerating over the last year.
‘We believe disclosure of board composition and the company’s commitment to expanding board diversity should be publicly stated as a business priority,’ says Tim Smith, co-chair of the coalition’s institutional investor committee and director of ESG shareowner engagement at Walden Asset Management.
‘Adding specific language to the nominating committee charter demonstrates the company’s intentions. As such, we are actively encouraging companies to disclose the present racial, ethnic and gender composition of their boards and plans for improvement going forward in proxy statements.’
On the wider rationale for having more women on boards, Laurent-Ottomane comments: ‘There is now a large body of indisputable research that shows a high correlation between gender-diverse boards and superior company performance. Credit Suisse was one of the first to highlight these findings in 2012. The 2015 McKinsey & Co study, Why Diversity Matters, shows that gender-diverse and ethnically diverse companies are 15 percent more likely to outperform, while 35 percent have financial returns above their national industry median.
‘The coalition approaches the issue as a business case: diversity on boards of directors as well as in senior and mid-level management [roles] is not only an indicator of good corporate governance, [but also presents] strong evidence that diversity is good for business. As our institutional investors are shareholders in the companies they engage, it is a discussion about factors that drive company performance.’
Call to action
But the coalition is not becoming complacent with its achievements, instigating instead a further call to action on points to be addressed by companies:
- Disclosure in the proxy of board composition inclusive of gender, race and ethnicity
- Language committing to diversity in governance charter
- Disclosure of future plans to make progress on board diversity
- Adaptation of the Rooney Rule for board candidates and senior leadership. Named after Dan Rooney, the former owner of the Pittsburgh Steelers and former chairman of the league’s diversity committee, the rule is based on a National Football League policy that requires league teams to interview ethnic-minority candidates. The request here is for each company to commit to include women and people of color in every pool from which board nominees are chosen and to state this in their board refreshment policies and/or nominating and corporate governance charter
- Consideration of candidates outside of CEOs for board positions.
When asked by IR Magazine which of these is likely to be the toughest to change, Laurent-Ottomane replies: ‘Consideration of candidates outside of CEOs for board positions. There is still a sentiment that CEOs are best qualified to serve on boards. If a company’s board is willing to engage in an assessment of its current board needs, most likely the need for only a CEO will be diminished.
‘One could argue that a board should reflect the company as a whole with skills such as marketing, human resources, communication and divisional profit and loss responsibility playing a functional role in a board’s oversight. Leadership experience and achievements are certainly key qualifications for board members.
‘If we expand the candidate pool to qualified, accomplished candidates outside of the CEO role, however, we have a better chance of finding diverse candidates. And according to research, diverse candidates equal a better performing board.’