Emerging Trend Aims to Improve Diversity on Corporate Boards

Lisa Nagele-Piazza, J.D., SHRM-SCP By Lisa Nagele-Piazza, J.D., SHRM-SCP November 30, 2020
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​The recent focus on gender and racial equity in the workplace has prompted state-level legislation to encourage or require diversity on corporate boards.

"Some companies are being much more intentional now about what they are doing to appeal to a broader range of people who want to serve on boards," said Dionysia Johnson-Massie, an attorney with Littler in Atlanta.

Some companies must act fast, because states like California and Washington will soon require more diversity on boards. "There's not a lot of time if you don't already have an existing pipeline of talent," Johnson-Massie said.

State-Law Diversity Trends

Gender diversity on corporate boards is improving, according to research by Institutional Shareholder Services, Inc. (ISS), which was published by the Harvard Law School Forum on Corporate Governance. Researchers found that 45 percent of new Russell 3000 board seats in 2019 were filled by women—compared to 12 percent in 2008.

ISS found that 19 percent of all Russell 3000 seats were held by women in 2019 and 10 percent belonged to a member of an ethnic minority group.

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Corporate boards meet regularly to set policies, develop the organization's strategic direction and supervise business activities. "Directors that hold numerous board seats exert considerable influence over United States corporations and broader society," noted the California Legislature in a recently enacted law on board diversity. "As directors gain seats on more boards, they gain influence over the creation of policy in more companies."

In 2018, California lawmakers enacted SB 826, which required boards of California-based publicly held companies to have at least one female director by the end of 2019 and to increase the number of female directors by the end of 2021.

The law appears to be working, but lawmakers noted that more than three-quarters of the women appointed to boards have been white. Therefore, the state passed AB 979 in 2020, which will require boards to add members of additional underrepresented groups, including people who self-identify as Black, African-American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, or gay, lesbian, bisexual or transgender.

"Many boards already understand the value of diversity, and this provides them the opportunity to just get it done," said Kathy Jaffari, an attorney with Cozen O'Connor in Philadelphia. "Without some sort of push, change is very difficult, and change in this area would be far behind where it is now if the conversation didn't rise to the level of legislation."

Washington followed California's lead by passing the Women on Corporate Boards Act, which takes effect in June 2021 and requires public companies to have gender-diverse boards by Jan. 1, 2022. On a "gender-diverse" board, at least 25 percent of the directors self-identify as women, according to the act.

"Some states may want to see how things shake out in California and Washington before passing their own mandates," said Ann Marie Painter, an attorney with Perkins Coie in Dallas. "But the trend is toward transparency."

For example, a corporation with its principal executive office in Illinois must include board diversity data in its annual reports by Jan. 1, 2021, and that information will be made available to the public. New York and Maryland also have board-diversity reporting requirements, while other states encourage but don't require board diversity.

Companies should think about how they can expand their pool of candidates, Johnson-Massie said. For instance, they may want to reach out to networks such as Black Enterprise and Corporate Counsel Women of Color.

"There are ways of looking in nontraditional places to find talent and develop mentorship opportunities," she said, noting that board-diversity strategies can be similar to the diversity, equity and inclusion methods used when hiring employees. 

Focus on Inclusion

The key is not only the number of diverse individuals around the table but also whether they have a voice, Jaffari said. "Boards have to decide whether they are committed to inclusion."

Boards may consider providing members with unconscious bias training, anti-harassment training and relationship training. "At the end of the day, it's about how people relate to each other," Jaffari observed. "Inclusion is about being willing to embrace differences."

Johnson-Massie suggested adding an inclusion statement in the welcome letter to new board members. Create a buddy system for people who are new to the board, she said, so new directors can learn the ropes.

Leaders can look to other companies to see what they are doing to improve board diversity, particularly in states with mandates, Painter said, noting that guidelines in California and Washington may serve as a good reference.

Jaffari added that change is usually uncomfortable. "We have to be willing to dig deep, be authentic and be real. It takes courage to do that."

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