- Nearly half of directors in a new report cited industry expertise as the top criteria for board membership. As companies face criticism about the lack of diversity on their boards, gender diversity (36%) and racial diversity (24%) were directors’ third and fourth choices, respectively, as criteria for eligibility. The report, What Directors Think: Public Company Directors Reflect on the Top Issues in the Boardroom, was published by Corporate Board Member, Computershare and Georgeson,
- Most of the directors said that today’s board candidates are more diverse and experienced and therefore easier for companies to find. They also said they think companies are doing enough to diversify their boards; 62% said boards were "sufficiently" gender diverse. However, 69% of directors said that companies could do more to make their boards ethnically diverse.
- Only half of respondents said their organizations have a formal process for grooming people for leadership roles, including board seats. Most surveyed add new members through recommendations, which may dampen diversity efforts, the report noted.
Women have made gains on company boards, data from Equilar's Gender Diversity Index (GDI) showed — but the movement toward more diversity has met some skepticism. The percentage of women joining boards for the first time exceeded 50% for three out of four quarters between 2018 and 2019. However, according to a study published in Organization Science, companies that increased the number of women on their boards experienced a decrease in market value. This finding conflicts with other sources showing that diversified workforces increase organizations' return on investments.
California's law on female board membership also raised controversy. The law requires publicly traded companies whose "principal executive offices", according to the corporation's SEC 10-K form are located in the Golden State had to have at least one woman on their board of directors by the end of 2019. The required number of women goes up to two for corporations with five directors or three for corporations with six or more directors by the end of 2021.
The "female board quota" legislation triggered a lawsuit, (Meland v. Padilla, No. 19-cv-02288 (E.D. Calif. Nov. 13, 2019)). The suit cited the mandate as "deeply patronizing to women," and "plainly unconstitutional." A male shareholder of a Delaware firm located in California filed the suit, alleging that the law "imposes a sex-based quota directly on shareholders, and seeks to force shareholders to perpetuate sex-based discrimination." The suit also alleges that the law "injures Plaintiff's right to vote for the candidate of his choice, free from the threat that the corporation will be fined if he votes without regard to sex."
Illinois, New York and New Jersey are reportedly considering passing laws similar to California's. If they succeed, it's not known whether their proposals will face legal challenges. Meanwhile, companies can develop their own strategies for diversifying their boards — including improving their focus on succession planning.