There’s been chatter about board gender diversity for a long time and, while there has been some modest progress, we have yet to see any dramatic breakthroughs. Now some of the largest asset managers are not just talking the talk, they are also walking the walk. Will it make a difference? Time will tell.
In its Investment Stewardship Report for Q2 2017, BlackRock (reportedly the largest asset manager, with $5.1 trillion under management) indicated that, in the second quarter, it supported eight out of nine shareholder proposals that requested the adoption of a policy on board diversity or disclosure around plans to increase board diversity. The majority of the companies did not have any women on their boards. In one instance, BlackRock report that it was told, during an engagement on the topic, that the company had difficulty finding a diverse slate; in another instance, the company appeared to make efforts to address the issue, but would not commit to a firm timeline. At five of the companies, BlackRock also voted against the nominating committee members “for failure to address investor concerns on board diversity.” BlackRock’s voting record this year seems to support the notion that the firm has turned the page on diversity proposals; according to Bloomberg BNA, from 2012 to 2016, BlackRock had supported only two out of 98 board diversity proposals.
The report indicates that BlackRock has “been particularly focused on increasing the number of women on US boards because progress in the US has been slower than in many other markets. Women held 16% of S&P 500 board seats in 2011 and 21% in 2016. At companies outside the S&P 500 the number of women in board seats is even lower.”
According to an analysis conducted by 2020 Women on Boards, gender diversity is even more problematic at companies conducting IPOs: of “the 75 largest IPOs from 2014 to 2016, nearly half, or 37 companies, went public with no women on their boards. Another 25%, or 19 companies, had only one woman. In other words, between 2014-2016, three fourths of companies with the largest IPOs went public with one or no women on their boards.” This article in Bloomberg BNA reports that some commentators attributed the lack of gender diversity to a “structural challenge” associated with IPOs of venture capital portfolio companies. The analysis showed that some companies did address the issue within a year or two: the number of companies with no women on their boards dropped from 37 to 22, or 30%, and the number with one woman increased from 19 to 27, or 37%. Nevertheless, even a couple of years after going public, two-thirds of the companies still had only one or no female directors. The group took solace, however, from the fact that most of these companies had relatively small boards, leaving plenty of space to expand board size and include more women.
According to BlackRock, board gender diversity “is important from a sustainable investment perspective given that diverse groups have been demonstrated to make better decisions. In the board context, this appears to be because they are better able to consider, where appropriate, alternatives to current strategies — a proposition that can ultimately lead to sustained value creation over the long term.”
According to a study from the Peterson Institute for International Economics, the presence of women in corporate leadership positions may improve firm performance and “the magnitudes of the correlations are not small.” The results of the study indicated that the presence of more women on corporate boards and in executive positions contributes to firm performance: “for profitable firms, a move from no female leaders to 30 percent representation is associated with a 15 percent increase in the net revenue margin.” According to the study, the proportion of female executives made the most significant contribution, followed by the proportion of female board members. (See this PubCo post.) And Bloomberg has noted that “[c]ompanies with at least one female director had better returns for six straight years….[T]here’s a pile of research showing that boards and other leadership panels with 50 percent women think more critically, which may explain the better results. Group dynamics change for the better when both sexes are present. Diverse groups solve problems better than homogeneous ones do, possibly because the men and women monitor each other’s performance more closely.” According to this Bloomberg Quicktake, a Credit Suisse study showed that companies with at least one woman board member saw an average return on equity of 14.1% from 2005 to 2015; all-male boards’ average returns were only 11.2%. (See this PubCo post.)
Earlier this year, another significant asset manager, State Street Global Advisors, which manages $2.47 trillion in assets, announced in this press release that it was “calling on the more than 3,500 companies [in which] State Street invests on behalf of clients, representing more than $30 trillion in market capitalization to take intentional steps to increase the number of women on their corporate boards.” (See this PubCo post.) This article in the WSJ reports that State Street “voted against the reelection of directors at 400 companies this year 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.”
What accounts for this continuing failure to increase board gender diversity? Low priority might be one reason. PWC’s 2015 survey of almost 800 public company directors revealed that only 39% of directors surveyed viewed board gender diversity as “very important.” Moreover, men and women seemed to have distinctly different views about the value of having women on boards: 63% of female board members said that gender diversity was “very important”; only 35% of male directors agreed. Some have argued that the problem stems from the absence of qualified candidates: assessing the difficulty of improving diversity, fewer than one quarter of directors in the PWC survey “very much” believed there were a sufficient number of qualified diverse candidates; 46% of female directors thought there were plenty of qualified diverse candidates, while only 18% of male directors thought so. And, in the 2016 Global Board of Directors Survey of more than 4,000 directors of both public and large, privately held companies from 60 countries conducted by Spencer Stuart, the WomenCorporateDirectors (WCD) Foundation and several academics (see this PubCo post), 39% of male directors in the 55-to-60 age group said the “lack of qualified female candidates” was the primary reason for the low numbers of female directors. However, 69% of female directors in that same age cohort attributed the low numbers to the failure to rank diversity as a top priority in board recruiting. (See this PubCo post.) But, as discussed in this PubCo post, some companies have undertaken new initiatives to increase the ranks of women on their boards, including approaches such as presenting women-only slates for consideration to fill open seats, waiving any informal requirement for prior board experience and requiring that at least one woman be interviewed for board seats.
Interestingly, even the Chamber of Commerce may be getting on board, so to speak, although for a different reason. At a July hearing held by the Subcommittee on Capital Markets, Securities, and Investment of the House Financial Services Committee, the representative of the Chamber advocated that, to avoid the prospect of regulation, companies should make efforts on their own to address board diversity. (See this PubCo post.) Given the deregulatory bent of the current administration, regulation to promote board diversity seems highly unlikely in the near term. Notably, the SEC’s latest Regulatory Flexibility Agenda, which identifies those regs that the SEC intends to propose or adopt in the coming year and those deferred for a later time, regulatory action regarding board diversity disclosure— a topic in which former Chair Mary Jo White expressed a particular interest (see this PubCo post)—has been relegated to the back burner. (See this PubCo post.)