NEW YORK – Amid the drive to make meeting rooms in the U.S. more like clients and company employees, advocates are finally seeing how difficult the task will be.
The boards of directors of publicly traded American companies are much whiter and much less diverse than the general population, which is often very serious. For example, only 2.7% of directors at the beginning of the year were Hispanic. That would have to rise to 18.5% to reflect the U.S. population.
If one does not consider the photographs of each director, it has not always been easy to measure racial diversity in corporate boards. On Thursday, management company Equilar published its first racial breakdown of tips for companies in the Russell 3000 index, which covers about 97% of all U.S. investment stocks.
The poll found that only 6.2% of directors are black versus 13.4% in the country. And 5% of directors of Asian or Pacific descent from the islands also fell short of 6.1% for the entire U.S. population.
Equilar obtained these figures from a variety of sources, including disclosures from companies, data from partner networks, and lists of influential leaders from racial and ethnic minorities. Its results are similar to the disproportionate representation found in other surveys of more limited groups.
Earlier this week, search engine Heidrick & Struggles published boards in a smaller group of Fortune 500 companies. Black directors were found to hold 26% of board seats, while Asian and Asian directors accounted for 9% and Hispanics. directors accounted for 6%.
Large companies tend to have more diverse boards than smaller companies. But increasingly transparent regarding racial decay for their board of directors. The big reason for this is that they are being forced under pressure from stock exchanges, regulators and investors.
For example, at Nasdaq, U.S. securities regulators approved a rule last summer requiring listed companies to submit an annual document detailing the racial and ethnicity of their directors, as well as other demographics. Nasdaq even has a completed PDF form to make it easier for companies to submit data by August 8 or whenever they apply for a 2022 power of attorney, whichever comes next.
By August 7, 2023, Nasdaq will require the listed company to either have at least one director who is considered “different” or to explain why this is not the case.
Investors are making similar pushes, arguing that more diverse boards lead to more perspectives and better decision-making. They want the boards to be more like their employees and customers, who are increasingly diversifying according to the country’s trends to better understand them.
“If you’re an investor, you’re looking for ways in which companies can excel,” said Anne Mileti, who is both chief executive officer of diversity and head of active capital at Allspring Global Investments. “We generally agree that the more variety in your board, the better performance you will get in the long run.”
The drive for greater racial and ethnic diversity in councils has been going on for years, when the focus was mainly on gender issues. Figures Thursday from Equilar show that women from racial and ethnic minorities are among the least represented on councils. Only 0.9% of American directors are Hispanic women, such as half of the already low 1.8% for Hispanic men.
Some demands to increase diversity have met with fierce resistance. California, for example, passed a law in 2020 that requires companies headquartered in the state to have a minimum number of directors from an underrepresented community. This includes people who identify themselves as black, Hispanic, Asian, gay, lesbian, bisexual or transgender.
Earlier this year, a California state court ruled the claim unconstitutional following a complaint of a violation of the California Equal Protection Clause. The judge wrote in his ruling that the state should have considered other options for achieving greater diversity in the councils before introducing it.
Such demands eventually led to increased racial diversity in councils, but unevenly, said Vicki Bogan, a professor at Johnson College of Business at Cornell University.
Her research showed that since the signing of the California law, the number of directors of Asian, Middle Eastern and North African descent has grown significantly. But the number of appointments of black directors did not. This is probably because California companies have replaced candidates from the first group with the second to comply with the rule, she said.
Bogan said the assassination of George Floyd in 2020 had a greater effect, especially for the appointment of black directors.
All U.S. companies have demonstrated an increased likelihood of appointing a black man to their board following the forced recognition of racism across America, she said. But companies that didn’t have black directors had an even bigger jump in probability.
“I think it’s too early to say whether it’s temporary or not,” she said. “I can share what I hope is not the case. I hope that we are on the way to having more councils that are more representative of the population. “