The lede from the WSJ is that “for the first time,” BlackRock (reportedly the largest asset management firm with $6.3 trillion under management) is “stating publicly that companies in which it invests should have at least two female directors.” According to the WSJ, the new disclosure, just one component of BlackRock’s recently posted Proxy Voting Guidelines for U.S. Securities (more on the guidelines to come in a later post), “represents a small but significant shift for one of the largest shareholders of American companies.” Board diversity has been a consistent issue for several large institutional investors in recent years but without much specificity, and reportedly, BlackRock has, in the past, quietly encouraged companies to have a minimum of two women on their boards. Now, BlackRock is trumpeting that standard publicly.

According to the article, BlackRock’s global head of investment stewardship recently sent letters to about 300 companies in the Russell 1000 with fewer than two women directors asking them to disclose their approaches to diversity and to establish a timeframe for improvement. The letter also cautioned that BlackRock believes that “a lack of diversity on the board undermines its ability to make effective strategic decisions. That, in turn, inhibits the company’s capacity for long-term growth.”

More specifically, the BlackRock voting guidelines regarding board composition make clear that BlackRock expects “boards to be comprised of a diverse selection of individuals who bring their personal and professional experiences to bear in order to create a constructive debate of competing views and opinions in the boardroom. In addition to other elements of diversity, we would normally expect to see at least two women directors on every board.”

In identifying candidates, BlackRock suggests that boards regularly assess the skills, performance and diversity of experience and expertise of current directors and consider how new directors might enhance them. BlackRock also encourages disclosure of board views on the “mix of competencies, experience, and other qualities required to effectively oversee and guide management in light of the stated long-term strategy of the company,” as well as the board’s process for identifying candidates, the board self-evaluation process and the consideration given to board diversity. If BlackRock believes “that a company has not adequately accounted for diversity in its board composition, [it] may vote against the nominating/governance committee members.”

Interestingly, BlackRock indicates that it is ”not opposed in principle to long-tenured directors, nor [does it] believe that long board tenure is necessarily an impediment to director independence. A variety of director tenures within the boardroom can be beneficial to ensure board quality and continuity of experience. [Its] primary concern is that board members are able to contribute effectively as corporate strategy evolves and business conditions change, and that all directors, regardless of tenure, demonstrate appropriate responsiveness to shareholders.”


Blackrock is certainly not the only asset manager to try to tackle this issue. This article in the WSJ reports that, in 2017, asset manager State Street “voted against the reelection of directors at 400 companies…on grounds they failed to take steps to add women to their boards.” According to the article, State Street found that 476 companies in its portfolio “lacked a single female board member. Of that group, the Boston-based firm said 400 companies failed to make any significant effort to address the issue.” As a result, State Street voted against members of the nominating committees of those companies’ boards. Of the 476 companies, the firm reported that “it had productive discussions with 42 that had zero female directors. In 34 instances, neither the chairman of the board’s nominating and governance committee nor the panel’s senior member came up for reelection this year.” (See this PubCo post.) Bloomberg BNA, reporting on a recent EY survey, asserted that over 80% of “asset managers, public pension funds, and other investors managing a collective $32 trillion in assets told EY that making sure boards have the right mix of members, including women and experts in areas such as cybersecurity, should be a focus for directors in 2018. That’s up from about 70 percent of investors the year before.”

As reported by the Society for Corporate Governance, California Senate Bill No. 826, which is currently just in the Committee process, would add Section 301.3 to the California Corporations Code, which would provide that, commencing “December 31, 2019, a publicly held corporation with its principal place of business located in California shall have a minimum of one woman director. If, by December 31, 2019, no director retires from the board, or an open seat does not otherwise occur, the board shall increase its authorized number of directors by one, and that seat shall be filled by a woman.” Then, in 2021, every publicly held corporation with its principal place of business located in California would have to comply with more specific requirements, depending on board size. The California Secretary of State would be charged with reviewing board gender composition annually and authorized to impose fines for violating the requirements. Of course, whether, as a matter that smacks of internal corporate governance, the code provision could be legitimately applied or enforced against companies incorporated outside of California is another question.

As part of its findings, the bill provides some impressive supportive data about the benefits of board gender diversity, including the following:

“(1) A 2017 study by MSCI found that United States’ companies that began the five-year period from 2011 to 2016 with three or more female directors reported earnings per share that were 45 percent higher than those companies with no female directors at the beginning of the period.

(2) In 2014, Credit Suisse found that companies with at least one woman on the board had an average return on equity (ROE) of 12.2 percent, compared to 10.1 percent for companies with no female directors. Additionally, the price-to-book value of these firms was greater for those with women on their boards: 2.4 times the value in comparison to 1.8 times the value for zero-women boards.

(3) A 2012 University of California, Berkeley study called ‘Women Create a Sustainable Future’ found that companies with more women on their boards are more likely to ‘create a sustainable future’ by, among other things, instituting strong governance structures with a high level of transparency.

(4) Credit Suisse conducted a six-year global research study from 2006 to 2012, with more than 2,000 companies worldwide, showing that women on boards improve business performance for key metrics, including stock performance. For companies with a market capitalization of more than $10 billion, those with women directors on boards outperformed shares of comparable businesses with all-male boards by 26 percent.

(5) The Credit Suisse report included the following findings:

(A) There has been a greater correlation between stock performance and the presence of women on a board since the financial crisis in 2008.

(B) Companies with women on their boards of directors significantly outperformed others when the recession occurred.

(C) Companies with women on their boards tend to be somewhat risk averse and carry less debt, on average.

(D) Net income growth for companies with women on their boards averaged 14 percent over a six-year period, compared with 10 percent for companies with no women directors.