Board diversity is improving, but this is not the time to back down. Companies, shareholders, and the overall economy benefit when board oversight better reflects the marketplace and draws from the broadest possible talent pool.
In 1992, Boston Trust Walden launched “Just Vote No” — voting against boards of directors without people of color or women. Thirty years later, champions of diversity within U.S. corporate boardrooms have reason to celebrate. In 2021, an astonishing 72 percent of new directors among S&P 500 companies were women and people of color. Particularly noteworthy in the current context of heightened national attention to racial justice, one-third of new independent directors are African American compared to 11 percent the previous year.
This progress is a necessary turning point in the composition of corporate boards. Yet, when put into context, the case for continued engagement is clear. Today, people of color comprise 21 percent of S&P 500 directors, roughly two-thirds of their proportion in the U.S. population according to 2020 U.S. census data. Women reached a milestone 30 percent of directors in 2021 but remain far from parity in U.S. boardrooms.
Many institutional investors have adopted proxy voting guidelines recognizing board and management diversity as indicators of good corporate governance. Asset managers, including the world’s largest — BlackRock, Fidelity Investments, State Street Global Advisors, and Vanguard — are starting to vote against directors if a board has no women or people of color, and support shareholder proposals on board diversity at companies deemed to be making insufficient progress. State and city pension plans nationwide have adopted proxy voting policies with minimum thresholds for board diversity. Three of four board diversity resolutions that went to a vote in the proxy season ending June 2021 garnered majority support.
In support of these investor directed actions, U.S. regulation and legislation to accelerate progress on board diversity also is on the rising. In August 2021, the SEC approved Nasdaq’s proposed board diversity rule requiring listed companies to meet diversity thresholds or explain their failure to do so, and to disclose diversity statistics. Federal legislation has been introduced to require disclosure of the gender, racial, and ethnic composition of boards of directors and executive officers (H.R. 1277), and numerous states have enacted, or are proposing, legislation mandating similar disclosure.
Investors like Boston Trust Walden have focused on strengthening nominating policies, processes, and disclosure to embed a lasting commitment to diversity in board searches. The Thirty Percent Coalition, representing institutional investors with more than $7 trillion in assets, asks companies to incorporate into formal governance policies a commitment to include women and people of color in each candidate pool. Similarly, the Russell 3000 Board Diversity Initiative led by the Illinois State Treasurer’s Office seeks comparable, comprehensive disclosure of the racial, ethnic, and gender composition of directors in annual proxy statements. Participating investors understand public accountability incentivizes and accelerates progress.
Amy D. Augustine
Director of ESG Investing, Boston Trust Walden
Samantha Burke
ESG Analyst, Boston Trust Walden