CS Boardroom Diversity: From disclosure to recruitment
Diversity in the boardroom – or lack thereof – has attracted attention in recent times, but that attention has intensified over the past year or so....
<sub>Research Report</sub>
<h4>Boardroom Diversity: From disclosure to recruitment
Introduction
Governance professionals discuss the information their companies are releasing and how they are seeking greater diversity
Diversity in the boardroom – or lack thereof – has attracted attention in recent times, but that attention has intensified over the past year or so. The focus comes amid greater scrutiny of both board performance and diversity, equity and inclusion matters following the Covid-19 pandemic and protests over racial injustice. Regulatory developments are also pushing companies to think about how they approach board diversity.
Governance professionals may be involved in a number of ways, such as working with their board to determine which details of its composition will be reported and how that disclosure will be made. There is growing appetite for information about the make-up of boards not only in terms of gender, race and sexual orientation but also across characteristics such as age, skills and experience.
Board diversity is an issue that can be raised during investor engagement or at company AGMs, too. Ultimately, decisions regarding board recruitment, renewal and succession planning are key, and all of these require involvement from both governance teams and directors.
In this special report we present data based on a survey conducted among governance professionals such as general counsel and corporate secretaries. They explain what types of board diversity information their companies report on and whether investors are asking questions about the topic. They also share their views on whether board diversity brings benefits and whether they are trying to enhance diversity on their board.
Key findings
- Almost half (48 percent) of respondents say their company does not disclose the racial composition of the board and almost a fifth (18 percent) don’t disclose its gender composition.
- Respondents at larger companies are more likely to use a matrix to present board diversity information: 20 percent of those at small-cap companies do so, compared with almost half (48 percent) of those at mega-cap companies.
- Respondents at larger companies are also more likely to have investors that ask about board diversity. Only around a fifth (22 percent) of respondents at small-cap companies say investors raise the subject, compared with almost three quarters (71 percent) of those at mega-cap companies.
- Almost nine in 10 respondents (86 percent) say board diversity helps create better board performance.
- More than three quarters (77 percent) of respondents say they believe board diversity helps lead to better corporate performance.
- Overall, almost three quarters (73 percent) of respondents say their company is taking action to increase diversity on its board.
Respondents
Survey demographics
This report is based on the findings from an online survey conducted between March and June 2021.
Diversity disclosures
What companies say about their boards
What companies say about their board
How does your company disclose each of the following details of the board’s composition?
Disclosure regarding the composition of boards is widely seen as a key feature of efforts to increase director diversity. Proponents argue that divulging this information enables investors to make more informed decisions and stimulate change. Others express concern about publicly sharing certain information about members of the board.
In our research, almost half (48 percent) of respondents overall say their company does not disclose the racial composition of the board. More than a third (38 percent) say they do not disclose the age composition of the board, while around three quarters (78 percent) don’t release information on veteran status and 83 percent do not disclose sexual orientation information. Almost a fifth (18 percent) don’t disclose the gender composition of their board.
Fewer respondents in Europe (11 percent) say their company does not disclose information on gender than do those in Asia (13 percent) or North America (18 percent). Three fifths (60 percent) of respondents in Europe say their company does not disclose data on the racial composition of their board, compared with 40 percent of those in Asia and 43 percent of those in North America.
Fewer respondents at larger companies say they do not release gender data. All respondents at mega-cap companies say their company releases gender information, while just 7 percent of those at large-cap companies don’t release it, compared with 16 percent at mid-caps and 22 percent at small-cap companies.
Similarly, just 6 percent of respondents at mega-cap companies say they don’t release data on the racial composition of their board, compared with 29 percent of those at large-cap companies, 59 percent of those at mid-cap companies and 60 percent of those at small caps. A similar pattern is seen along company size lines when it comes to releasing age data. But there is greater consistency between cap sizes in terms of not releasing data on the sexual orientation and veteran status of boards.
Among companies that do reveal details, there is either a roughly even split between those that do so on an aggregate or individual basis, or a clear preference for doing so on an individual basis, depending on the category at issue. (Companies may issue composition data on both an aggregate and an individual basis.)
Globally, 26 percent of respondents say they issue aggregated data on the board’s racial composition and 23 percent do so on an individual basis. There is a similarly even split between those whose companies issue sexual orientation data on an aggregate basis (5 percent of all respondents) and those whose companies do so on an individual basis (also 5 percent).
On the other hand, half of all respondents’ companies release individualized data on the gender composition of their board, compared with just over a third (35 percent) that do so on an aggregate basis. More than half (53 percent) of all respondents say they release age composition data on an individual basis while just 7 percent do so on an aggregate basis.
Comments
Among respondents who say their company releases other types of information about the composition of their board, examples of these other types of information include:
- ‘Ethnicity, member status (retired/active), gender, geographical location, language’
- ‘Visible minorities, indigenous people and people with disabilities’
- ‘Years of experience in various fields’
- ‘Disabilities’
- ‘Tenure of the board members’
- ‘International experience’
- ‘Multilingual; non-binary’
- ‘Skills and experience’
- ‘Professional background, independence’
Information presentation
Where and how companies disclose board composition information
Where and how companies disclose board composition information
How does your company present the board diversity
information that it releases?
The most common format cited by respondents for presenting board diversity information is ‘narrative’ (60 percent). Photographs are used by 42 percent of respondents and a matrix by less than a third (29 percent). Respondents in Asia are more likely to use a narrative format (85 percent) than those in Europe (68 percent) or North America (55 percent). Those in Europe are more likely (49 percent) to use photographs than those in North America (43 percent) or Asia (31 percent).
Respondents at mid-caps (71 percent) and mega-cap companies (70 percent) are more likely to use a narrative than those at small or large-cap companies (55 percent and 61 percent, respectively). A greater number of respondents at large and mega-cap companies use photographs (59 percent and 55 percent, respectively) than do respondents at small or mid-cap companies (37 percent and 39 percent, respectively).
Respondents at larger companies are more likely to use a matrix to present board diversity information: just a fifth (20 percent) of those at small caps use a matrix, compared with 35 percent of those at mid-caps, 39 percent of those at large-cap companies and almost half (48 percent) of those at mega-caps.
Among respondents who use other formats, examples cited include director biographies, statistics and a variety of charts and graphs.
Where does your company release information on
board composition?
The most common way to release board composition information – cited by 65 percent of all respondents – is on the company website. Almost half of all respondents (47 percent) say they include that information in their company’s proxy statement. But while 60 percent of respondents in North America mention their proxy statement, only 20 percent of those in Europe and none of those in Asia do so. Globally, 23 percent of respondents say they disclose via a sustainability report.
Respondents at larger firms are more likely to include board diversity information in their proxy statement. The number increases from a third of respondents at small-cap companies to 57 percent of those at mid-caps, 71 percent at large-cap companies and 84 percent at mega-caps.
Among respondents who disclose board composition information in another place, the majority cite their annual report.
Do investors ask about diversity on your company’s board?
Perhaps surprisingly – given the attention the issue has attracted among shareholders, companies and regulators – only around a third (35 percent) of respondents say investors ask about diversity on their company’s board, with 43 percent saying they do not. It should be noted, however, that more than a fifth of respondents (22 percent) say they do not know whether the topic is ever raised.
Respondents in Europe are more likely to have investors that ask about board diversity (43 percent) than those in North America (34 percent) or Asia (31 percent). But respondents in North America are less likely to know whether the issue is raised (27 percent) than those in Europe or Asia. Sixty-two percent of respondents in Asia say investors don’t ask about the topic.
Respondents at larger companies are more likely to hear investors ask about board diversity. Only around a fifth (22 percent) of respondents at small-cap companies say investors ask, compared with a third of those at mid-caps, more than half (57 percent) of those at large caps and almost three quarters (71 percent) of those at mega-cap companies.
Comments
Among those who say investors ask about diversity, more than a third say they ask about gender and/or ethnic and racial diversity. Other comments from respondents include:
- ‘Diversity of experience overall and specific to certain material issues such as risk, climate change, finance, and so on’
- ‘General questions about board composition’
- ‘They want us to begin looking at ESG reporting, with the hope that we add more women and people of color to our board and upper management’
- ‘Plans to increase diversity on the board’
- ‘They let us know that they expect diversity on the board and disclosure of diversity’
- ‘Investors frequently ask about diversity and inclusion, including our company’s policy on diversity and statistics for diversity on the board and in other senior management/leadership roles throughout the group’
- ‘Succession planning’
- ‘They ask for photos’
- ‘They ask whether we would disclose on an individual basis’
- ‘Board composition and recruiting’
Moving forward
The benefits of diversity and how to get there
The benefits of diversity and how to get there
Do you believe diversity on company boards helps lead to better board performance?
The survey suggests that a significant majority of governance professionals see benefits in increased board diversity and that most companies are looking to address the issue. Almost nine in 10 (86 percent) of respondents say board diversity helps create better board performance.
That figure is broadly consistent among respondents from different regions and at different size companies. Eighty percent of those at mid-cap companies believe board diversity helps create better board performance, compared with 85 percent of those at small caps, 90 percent of those at mega-cap companies and 95 percent of those at large caps.
Comments
Respondents were asked why they believe diversity on company boards helps lead to better board performance. Their answers primarily relate to the benefits of having diversity of thought as a result of a diversity of experience and background among directors.
Comments include:
Do you believe diversity on company boards helps lead to better corporate performance?
More than three quarters (77 percent) of respondents say they believe board diversity helps lead to better corporate performance. That figure is broadly similar across respondents from different regions. In terms of company size, respondents at large caps (82 percent) and mega-cap companies (83 percent) are more likely to say board diversity helps improve corporate performance than those at small-cap and mid-cap companies (77 percent and 70 percent, respectively).
Comments
Respondents were asked why they believe diversity on company boards helps lead to better corporate performance. Similar to their comments on how board diversity affects board performance, their answers here largely refer to the benefits of having diversity of thought as a result of a diversity of experiences and backgrounds on the board.
Comments include:
- ‘Different people provide different perspectives in the boardroom. Different perspectives often lead to different ways of thinking among groups. This can be beneficial to a company looking for change and growth. If you have the same group of individuals making decisions time and time again, the same perspectives are provided time and time again’
- ‘Sets the tone for the entire company on diversity’
- ‘Diversity of points of view from different backgrounds reduces the risk of either blind spots or tunnel vision’
- ‘More and different board perspectives that flow down to executive management’
- ‘Diversity of thought and better female and minority representation at the top lead to a more diverse workforce’
- ‘Directors with diverse experiences and perspectives are more likely to challenge management’s assumptions and encourage alternative ways of seeing problems and solutions’
- ‘It’s simply a question of tone at the top. Diversity at the board level will inspire performance across operations and improve morale. A culture of excellence in governance – including diversity – will without fail contribute to better corporate performance’
- ‘Diversity brings broader perspectives, better reach to markets, better insight and opinions around the board table’
- ‘Data shows companies with more diverse boards achieve higher levels of corporate performance’
Is your company taking action to increase diversity on its board?
Globally, almost three quarters of respondents say their company is taking action to increase diversity on its board. That figure is broadly similar between regions, with 75 percent of respondents in North America, 69 percent of those in Europe and 77 percent of those in Asia saying their company is taking this action.
Respondents at large caps (93 percent) and mega-cap companies (84 percent) are more likely to say their companies are taking action on board diversity than those at small caps or mid-cap companies (63 percent and 68 percent, respectively).
Comments
Asked what action is being taken at their company to increase board diversity, most respondents mention looking at diverse candidates when recruiting directors.
Comments include:
- ‘Specific request for diverse board members when recruiting’
- ‘Considering diverse candidates for all open directorships’
- ‘Board pledge, Rooney Rule’
- ‘As vacancies become available, we reach out to organizations that are gender-focused’
- ‘Board selection process’
- ‘A greater emphasis is placed on diversity when searching for new board members’
- ‘Our board is elected so we encourage broad diversity in candidates who wish to run for election’
- ‘Continuous review of diversity policy; consideration of diversity during recruitment’
- ‘Considering [establishing] a diversity policy’
- ‘Requiring a portion of all candidates to be diverse’
- ‘Our nomination committee makes sure the Norwegian rules of diversity at listed companies are being complied with’
- ‘Rooney Rule adoption, more disclosure, added two directors in 2020 with gender/racial diversity’
- ‘A number of factors are considered as part of our board-level recruitment, including diversity factors as well as background and experience’
- ‘Ensuring succession planning incorporates equality of opportunity as a key [criterion] for search mandates’
- ‘We developed a board profile that includes diversity attributes. We will start mapping current board members to get a baseline of diversity’
- ‘Seeking to build diverse candidate pipeline’
- ‘Courses, proactive engagement with members and stakeholders, disclosed strategy’
- ‘External consultant has been retained to provide diversity training to the board’
- ‘Review of by-laws, composition, best practices in sector, [equity, diversity and inclusion] committee review’
- ‘Nomination committee evaluating the composition annually’
- ‘Outreach to diverse community leaders and industry experts’
- ‘[Nomination and governance] committee is building profiles for board refreshment’
- ‘Commitment to federal (Canadian) goal for a 50:30 board [with] 50 percent gender balance and 30 percent black, indigenous and people of color/LGBTQ2/disabled membership’
- ‘Mapping and screening potential future candidates to include at the next AGM’
- ‘We are aiming to comply with the Parker Recommendations before this becomes formally required in a few years’ time’
- ‘In 2019, our board adopted a version of the Rooney Rule, committing to include at least one diverse (a racial or ethnic minority or female) candidate when seeking to fill a vacancy. We expanded this commitment to include executive officer recruitment, including CEO succession, in 2020’
Change in the US?
Thoughts on how to increase board diversity
Thoughts on how to increase board diversity
Respondents were asked: ‘What would help improve board diversity at US companies in general?’ Many mention regulatory requirements, tenure limits and expanding the pool of director candidates by looking for individuals from non-traditional backgrounds.
Specific comments include:
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‘Investor mandates; stock exchange/regulatory support’
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‘Promoting women and visible minorities by men who identify as a woman or as a visible minority’
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‘Expanding board sizes’
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‘A regulatory mandate’
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‘More frequent turnover at the board level’
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‘Remove blinders and take a chance on appointing directors with non-traditional backgrounds. Look for experience/skills that are translatable to the corporate boardroom’
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‘More C-suite diversity – boards are just repurposed C-suite folks’
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‘Mandatory retirement policies, mandatory diversity targets’
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‘Free directories of candidates including diversity candidates so [the] board can find diverse candidates who also meet required business criteria’
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‘Greater representation of women and minorities in senior management roles’
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‘Education in unconscious bias’
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‘A willingness to seek people with different skill-set backgrounds, and not be fixated on typical backgrounds’
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‘Quotas’
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‘Legal requirement to improve, with measurable targets at specific intervals’
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‘Limiting the number of terms a member can serve at the board thus opening space to nominating new members based on diversity requirements’
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‘Broader understanding that there are diverse candidates who are fully qualified and how to find them. Broader understanding that diversity is associated with improved corporate performance and strategic decision-making. Broader understanding that diversity and related reporting can reduce the cost of capital’
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‘Regulatory requirements’
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‘Broad adoption of [the] Rooney Rule and expanding pool of director candidates to include non-C-suite executives and executives with less traditional backgrounds’
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‘Board diversity is actually cognitive diversity, I would say. It brings various perspectives and ideas and thoughtful discussion takes place’
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‘Looking for directors who are not CEOs or former CEOs’
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‘The combination of regulation from government, regulation from bourses and the bully pulpit of media and social media seems to be having its desired effect. I can’t recommend anything else (and frankly find the above three mechanisms to be heavy-handed and anti-market) at this time’
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‘Tone from the top and interest from investors to increase diversity’
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‘Incentivizing companies to have more women and minorities on the board. Recent rule changes at Nasdaq should help further promote companies to add women and minorities to boards’
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