S&P 500 failing to implement diversity

CGLytics’ second annual S&P 500 report... titled ‘Do 2020 trends foretell the future?... examines diversity at the top levels of S&P 500 companies, noting that investors are increasingly focused on diversity, particularly around gender and race.

Some progress has been made on gender, but certainly not enough. The report notes that ‘in 2008, 73 companies that are currently part of the S&P 500 did not have any female directors; in 2019 they all had at least one woman on the board. [But] the same progress has not been observed at the executive level. Only 5 percent of companies in the S&P 500 were headed by women in 2019, and women are still vastly under-represented in executive roles.

Where proxy proposals were put forward on diversity, CGLytics also notes that support was low – despite investors being increasingly vocal on diversity. It cites Amazon as an example: its shareholders did not approve shareholder proposals to establish reports on community impacts, viewpoint discrimination and promotion data. Only 15 percent of Amazon’s shareholders voted to create a report on pay disparities based on gender and race.

Another example is Google parent company Alphabet, which did not pass any proposed motion to establish a human rights risk-oversight committee or to issue reports on racial/gender pay and sustainability metrics.

The only company in the S&P 500 that voted to establish an annual diversity report was Fortinet (69 percent in favor), says CGLytics.

‘The topic of diversity is usually a very sensitive subject for companies,’ says Schindlinger. ‘What we usually see is that companies are not expanding their scope enough at the beginning of their search to fill the board. They are still using the traditional ways of filling board seats through their own network, which is essentially a closed circle.’

She is seeing differing levels of enthusiasm within different areas of companies, too. ‘Some might have concerns about the possibility of disruption that comes with onboarding new directors, particularly those who see the world differently – and that can contribute to lackluster efforts around increasing diversity,’ she explains. ‘There might also be internal conflicts as to the level of diversity the board wants to achieve vs what management wants to achieve. Typically, as the C-suite appoints below C-level (senior vice presidents) or higher-level staff, its thirst for diversity may not be the same as that of the board, which appoints the C-suite.’

Schindlinger explains that while the vast majority of companies (81 percent in a study the Diligent Institute conducted with the ICE/NYSE in October) say their board either already has a plan for increasing boardroom diversity or will soon have one, less than half (45 percent) have a specific timeframe for meeting diversity goals – and this is a big obstacle to progress.  

‘Not setting a specific timeframe to meet the goals is going to serve as a barrier to progress for boards on diversity,’ Schindlinger says. ‘We also learned that the refreshment practices that correlate strongly with progress on diversity are the least likely to be implemented by boards.’ Specifically:

  • Only 8 percent limit directors’ terms or overall tenure
  • Only 6 percent have asked long-tenured directors to retire or resign
  • Only 4 percent have created diverse-only slates of candidates for open board seats
  • And only 3 percent have set diversity quotas.

‘These four strategies would clearly help provide natural opportunities for board refreshment and help to accelerate diversity efforts, but they are not being implemented – and are not likely to be implemented soon.’

By Garnet Roach

Original article

...we find that banks with more gender diversity on their board perform better once the composition of these boards reaches a critical level of gender diversity, corresponding to a board female share of around 13-17 percent.

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