The Case for Increasing Boardroom Diversity
With all the focus on improving diversity in the ranks of senior corporate management, the glaring corporate governance problem is the lack of diversity in corporate boardrooms.
The facts paint a dismal picture – a 2011 survey of Fortune 500 companies found that women held only 16 percent of board seats; 11 percent of companies had no women on their boards; only 3 percent of board seats were held by women of color.
A 2012 survey of S&P and Russell companies found that only 12 percent of S&P 1500 directors were women and 11 percent of Russell 3000 companies were women.
The lack of diversity is not limited to United States companies. A global survey of all companies in the MSCI All World Index found that:
41 percent of the companies had no women on their boards;
72 percent of companies in emerging Asian markets (China, India, the Philippines, and South Korea) and 68 percent of companies in developed Asian markets (e.g. Hong Kong, Japan, Singapore, Australia) had no women on the boards; and
60 percent of companies in Latin America had no women on their boards.
Recent scholarship has focused on measuring whether the lack of diversity on corporate boards effect on corporate financial performance. While there are a number of studies in this area positing different models for analyzing the issue, the weight of the evidence confirms that lack of diversity effects corporate performance, especially stock performance. See Credit Suisse Report, Gender Diversity and Corporate Performance (August 2012) (Here); and F. Dobbin and J. Jong, Corporate Board Gender Diversity and Stock Performance: The Competence Gap or Institutional Investor Bias? (Harvard University, July 1, 2010) (Here)
If diversity does not improve in the corporate boardroom, companies run the risk that the SEC or even Congress may address the issue. This SEC is not shy about mandating disclosures of important, or “material” issues, and the SEC may start to take greater interest in the issue. In addition, Congress is not shy about such issues, especially when it comes to improving diversity in the business world.
Public opinion if focused on the issue could become a factor. Candidate Romney certainly touched a nerve with his “binders full of women” comment in the second debate with President Obama. It would not take much for Congress and the media to draw attention to this issue, especially in this era when big business appears to be a frequent target of public criticism.
As women rise in the ranks and “lean in” to assume the reins of more and more companies, pressure will build to open the corporate boardroom doors to increased numbers of women and minorities. The sooner the doors are opened, the better for our economy and corporate governance.