Research: Small-cap companies least likely to set board diversity goals

Apr 11, 2019
European companies have made the most progress on board diversity, study shows

Just over three in 10 small-cap companies set board diversity targets, the lowest among all cap sizes, according to new data from IR Magazine.

While diversity efforts have been embraced by a wide range of companies, just 40 percent of mid and large-cap companies and 42 percent of mega-cap companies are considering ways to support these kinds of initiatives, according to the findings of IR Magazine’s Board Diversity research report.

Globally, 38 percent of companies have plans to boost board diversity. North American firms are the least inclined to do so, with just 34 percent setting board diversity goals. Asian firms don’t fare much better, at just 35 percent. Europe is by far the keenest region, with 45 percent of companies there setting targets for increasing board diversity.

‘Old white men’ no longer the norm

Jeffrey Goldberger, principal of KCSA and overseer of the firm’s integrated communications services offering and capital markets practice, tells IR Magazine that the days of boards ‘comprising a bunch of old white men is as current as a black-and-white television’.

‘Diversity of boards is important, and not because it checks the box,’ Goldberger explains. ‘Diversity is important because it allows for different experiences, perspectives and knowledge to be brought to the forefront of discussion. It also allows companies to enact change when necessary and to remain current with the times.’

A significant number of the world’s largest investors now list board diversity among their top priorities when selecting companies to invest in, IR Magazine’s research report highlights. It shows nearly a third of investors that have asked questions on diversity in the past year are either interested or very interested in the subject.

At small-cap companies, more than one in five IROs have received board diversity questions in the past year and 24 percent of mid-cap IROs likewise. This jumps to 52 percent at large-cap companies and 54 percent at mega-caps. The type of questions asked by investors regarding board diversity include:  

  • What, if any, guidelines are placed around diversity in recruiting for board, management and employee positions/opportunities?
  • Can the chairman and CEO be the same person?
  • Can the CEO of a small company be COO of another just because the bigger company has a stake in the smaller company?

Regionally, North American IROs (41 percent) are the most likely to have received board diversity questions, compared with Asia (37 percent) and Europe (30 percent).

Beyond profit and loss

Increasingly, investors, bankers and analysts are looking beyond simple profit and loss, says Goldberger.

‘They’re also looking at the quality of people tasked with running a company – and that includes the board of directors,’ he notes. ‘It says a lot about [a firm] and goes a long way toward building credibility when a small-cap company assembles a strong and diversified board.

‘Regardless of whether you’re a large-cap, mid-cap or small-cap company, diversity at the board level is important; it might be most important for small-cap companies. As it becomes increasingly challenging to operate as a publicly traded small-cap company, a company should do whatever it can do to positively differentiate itself from its peers.’

The focus on diversity is primarily the result of internal factors, say 55 percent of those polled, while just under a quarter mention public perception. Just 4 percent of respondents consider investor pressure to be the primary driver of board diversity.

Quicken the pace

Smaller companies are more likely to be driven by public perception than larger companies and less likely to be driven by internal issues. Investor pressure and the media are of little influence in driving diversity no matter what the company size, says the report.

According to Egon Zehnder’s 2018 Global Board Diversity Tracker, the number of board positions held by women has risen by 6.8 percentage points over the past six years to 20.4 percent. But this still means there are four times as many men as women on company boards. Clearly there is some way to go before those concerned with board diversity would be satisfied with progress.

‘I would contend that progress toward diversity at the board level trails behind the times but then again so does the hiring of qualified female CEOs at Fortune 500 companies,’ notes Goldberger. ‘I contend that the talent pool of qualified, diverse board candidates is deep. We just need more companies willing to dive into the deep end.’

The report polled 662 IROs and 202 investors.

 

Click here for more information on IR Magazine's Board Diversity research report. 

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