Gender diversification on boards was a prominent issue in 2018, and shareholders have never been more explicit in their expectations of companies. A CGLytics review entitled “Diversity in the Boardroom of S&P 500 Companies” reveals that some progress has been made. Companies have improved female board representation, but at a much slower rate than what is needed to meet targets set by some proxy advisors and new legislation.
In the past 12 months, the emphasis on gender diversity in the boardroom has never been greater. Demands from not only the media, but from campaigns such as “Fearless Girl,” and from shareholders, investors, proxy advisors and governing bodies, have made all companies, regardless of industry, sit up and take notice.
There are, of course, many benefits to improving boardroom gender diversity that go far beyond fresh perspectives and improved profitability. However, in order to build an effective board that meets current diversity standards, Nomination and Governance Committees need to find new ways to recruit the right — and the best — female candidates to fill their boards.
Appointments and departures of S&P 500 company directors between 2017 and 2018 show evidence that companies are actively trying to improve gender diversity on boards. While overall female representation grew by only 1%, there are some data points that demonstrate how S&P 500 companies are progressing.
- One-third of new board appointments in 2018 were women
One of the most encouraging changes in 2018 was the increase in the percentage of female appointments to boards. Thirty-three percent of new appointments were female, up 25% from the previous year. Of the 60 new appointments under the age of 50, more than half were women, demonstrating that companies are recruiting younger female leaders. In tandem with gender, diversity of age should also not be overlooked, as our findings also revealed a positive correlation between the number of younger directors on S&P 500 boards and one-year company Total Shareholder Return (TSR).
- Telecommunications Services have the highest representation of women on boards
Almost all industries saw an improvement in gender diversity of their boards between 2017 and 2018. The financial sector showed the greatest improvement, with female appointments up by 2%. While Telecommunication Services showed a 3% decrease in female representation in 2018, the industry still shows the largest representation of women on boards, at 28%.
- Representation of female directors is growing, but radical action is required to hit targets
With female board representation reaching 24% in 2018 (up just 1% from 2017), it’s critical to understand how many more appointments are needed to reach gender diversity goals of 30% and 50%, respectively: currently, 327 female appointments are needed to reach 30% and 1,431 to reach full gender parity. However, to find suitable candidates to fill the S&P 500 boards, companies are going to need to extend their network or to look further afield.
If a wider net is cast — for instance, looking at female directors on S&P MidCap 400 and S&P SmallCap boards, and C-level executives, in the U.S. alone — 2,577 candidates are available. Beyond the U.S. market, the CGLytics database shows more than 20,000 professional and experienced female candidates.
- Overboarding is no excuse not to recruit women to boards
Companies pleading a scarcity of non-overboarded female candidates should reflect on the 96% of existing female S&P 500 directors who are currently available. This highlights that women serving on S&P 500 boards are almost equally available as men (92%) before overboarding becomes an issue — and that this cannot be used as an excuse by companies not to recruit women.
Efforts to improve board gender diversity are starting to come to fruition; however, more work needs to be done. Given new legislation being passed in the U.S., and added pressure from activists and media groups, it is no secret that U.S. companies need to focus on improving gender diversity in their boardrooms. New ways of searching for and connecting with potential female candidates are being leveraged, as companies that don’t take the mandate seriously will be met with reputational impact, backlash and possible removal of directors.