According to consultant Equilar’s Gender Diversity Index, for the second calendar quarter of 2018, the percentage of women on the boards of companies in the Russell 3000 increased from 16.9% to 17.7%, representing the third consecutive quarter of increase. Also in Q2, 39 boards reached gender parity—an increase of eight from the previous quarter. And, for 71 boards, the percentage of women directors was between 40% and 50%, representing an increase of nine from the prior quarter. But what’s most interesting about the data, however, is that, of appointments to new board seats during the period, 34.9% went to women—almost twice the percentage recorded in 2014. Equilar views that fact as “a promising sign that companies are making a concerted effort to promote diversity in corporate boardrooms.” The increase moves Equilar’s GDI to 0.35, where 1.0 represents board gender parity.
But you might want to hold the applause for now—it is still predicted to be several decades before true board gender parity is achieved. And notably, the percentage of women on boards (17.7%) is not much greater than the percentage of boards (17.1%) that still have no women directors.
Equilar attributes the increase to “direct pressure from investors and lawmakers,” which has “elevated the push for gender equality across corporate America.” There is probably some merit to that view. For example, the voting guidelines regarding board composition issued this year by BlackRock (reportedly the largest asset management firm) made clear that BlackRock expected “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.” According to the WSJ, BlackRock’s global head of investment stewardship 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.” (See this PubCo post.)
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.” (See this PubCo post.) More generally, in its survey of over 60 institutional investors with an aggregate of $32 trillion under management, the EY Center for Board Matters reported that, among investors’ top priorities for companies in 2018, board composition, particularly gender diversity, was a top priority for 82%. About half of respondents reported that they consider board diversity in voting, while a quarter do so in the context of proxy contests and shareholder proposals. The driver appears to be the “interest in effective board composition, given the wide range of studies demonstrating the benefits of diversity, including how diverse perspectives enhance issue identification and problem-solving ability and impede ‘group think.’” (See this PubCo post.