A study of companies in the Russell 3000 just released by ISS showed that, for the first time, directors who self-identified as racial and ethnic minorities accounted for 20% of all board directorships. The study found that each of the minority groups analyzed experienced growth in the percentage of director seats held, with the greatest growth (90% over the study period) occurring among African-American directors, who now hold 8.3% of all board seats in the study group. According to the Head of ISS Corporate Solutions, these percentages “represent a watershed moment for minority corporate directors broadly and Black directors in particular….The analysis shows the impact of increasing and continual institutional investor engagement with portfolio companies on matters around board diversity coupled with growing stakeholder pressure from various quarters over the past two years.” Still, as she told Reuters, “[w]hile this is a huge sea change in terms of the percentages, it still falls short of the ethnic breakdown of the U.S. population….It’s a watershed moment but probably not something to pat ourselves on the back too much about.”
According to the WSJ, large institutional investors such as BlackRock, State Street and Fidelity all say that they “take boardroom diversity into account when making investments.” A 10-year corporate director who is also an African-American woman told the WSJ that she has “always said that we will start to see progress once investors care about diversity….The good news is that investors care, and they are making their voice heard because they know the research, which shows more diverse boards result in better overall performance.”
The study looked at director seats among the Russell 3000 over the four-year period from January 1, 2019, through January 1, 2023. The study did not include in the analysis directors who did not disclose their ethnicity or race or whose race or ethnicity was otherwise unknown. The analysis points out that “the number of these unknown/undisclosed directors decreased by 58% over the period and accounted for less than 3% of all director positions sampled in 2023,” which indicates that companies are disclosing directors’ ethnicity and race more frequently.
During the period, the analysis found that there was a 55% increase in director seats held by Asian-American directors (from 4.6% to 7.2%), a 37% increase in the number of directorships held by Hispanic/Latin American directors (from 2.6% to 3.6%), a 38% increase for Middle Eastern/North African directors (from 0.7% to 0.9%) and a 33% increase for Native American/Alaskan Native/Native Hawaiian directors (from 0.1% to 0.2%); over the same period, the percentage of Caucasian directors fell by 9%, from 87.6% to 79.9% of all directorships at companies covered in the analysis. Nevertheless, as Reuters observed, “most minority groups hold a smaller share of board seats than their share of the total U.S. population. That is especially true for directors of Hispanic or Latino origin, who hold 3.6% of board seats but account for 18.9% of the U.S. population, according to U.S. census figures.”
In recognition of Black History Month, the study put a spotlight on data regarding Black/African-American directors. As noted above, the greatest growth in the percentage of director seats held was among African-American directors, reflecting a 90% increase from 4.4% to 8.3%. According to the analysis, the “pace of change for Black/African American directors began to accelerate in 2021 during the pandemic and in the wake of Black Lives Matter movement.”
While the study confirmed that there were still few African-American CEOs and board chairs among the Russell 3000 (around 1% each year), the study did find significant gains among Black directors in certain board leadership positions. For example, the percentage of Black lead directors rose over the period from 1.9% to 4.7%. Likewise, the percentage of Black members of Nominating Committees jumped from 5.4% to 9.9%, which could have the effect of providing more access to potential Black director candidates.
According to the study, substantial increases in the proportion of director seats held by African-Americans occurred across all industry sectors; the one exception was the Utilities sector, which began the period with the highest proportion of Black directors at 10% and retains that position at 12%. Consumer Staples and Consumer Discretionary were not far behind at 10%, reflecting increases over the period of 69% and 75%, respectively. The greatest percentage increases were in the Energy and Real Estate sectors, which grew by 192% (2% to 6%) and 153% (4% to 9%), respectively. However, the Energy sector had the lowest percentage of Black directors in 2019, accounting for much of the large increase. Overall, considering all racial/ethnic minorities, companies in the Energy, Real Estate and Financials sectors had the least diverse boards in the study.