By Sheryl Estrada
The drive to make diversity a priority should come from board leadership. However, PricewaterhouseCoopers’ (No. 5 on the DiversityInc Top 50 Companies for Diversity list) annual corporate survey found investors have been the ones pushing the needle toward diversity and inclusion.
The survey, called “The swinging pendulum: Board governance in the age of shareholder empowerment,” questioned more than 800 corporate directors of public companies. Seventy-one percent serve on the boards of companies with more than $1 billion in annual revenue.
“What we found in our survey was that directors were making a lot of changes in response to investors,” Paula Loop, who leads the PwC Governance Insights Center, told DiversityInc.
Loop said increasing board diversity is on the agendas of many institutional investors. According to the report, “In some ways, the pendulum has swung from a ‘board-centric’ model that took root after the governance and accounting scandals of the 1990s to an ‘investor-centric’ model today.”
There was an increase in the percentage of directors who now say their board uses investor recommendations to identify new director nominees —18 percent this year, compared to 11 percent in 2012.
Women, Men Directors Differ in Thoughts on Diversity
Almost all of the directors surveyed agree that diversity is at least somewhat important — 96 percent.
“Forty-six percent said they’ve added a diverse board member,” Loop said.
The percentage of directors who view gender and racial diversity as very important director attributes increased from 37 percent in 2014 to 41 percent.
Forty-seven percent agreed very much that board diversity leads to enhance board effectiveness, and 35 percent agreed very much that board diversity leads to enhanced company performance.
However, when breaking down the statistics between the male and female respondents, a greater disparity in perspectives is revealed:
- Women directors are much more likely to think board diversity improves company performance — 89 percent compared to 24 percent of men.
- Women directors overwhelmingly believe board diversity improves board effectiveness — 92 percent versus 38 percent of men.
“While they’re being responsive to shareholder suggestions, investor suggestions in the broad sense of it, [male directors] are not yet convinced the reason they’re doing it is because it will improve company performance for board effectiveness,” Loop said.
One in 10 Directors Believe Representation of Women on Boards Should be 20 Percent or Less
According to the survey, an equal percentage of directors believe that 21–40 percent and 41–50 percent are the optimal ranges for female board representation, which is higher than the actual percentage of women currently serving on boards.
However, one in 10 directors believe the optimal representation of women on boards should be 20 percent or less — 97 percent of those who believe this are male.
Loop said, based on other surveys, the PwC Governance Insights Center found some directors don’t believe there should be more female board members because there aren’t adequate numbers of qualified, diverse candidates available.
She said that in this survey they asked a follow up question of “whether or not they believe there is a sufficient number of qualified, diverse candidates.”
Loop explained, “Again the response was split by gender. Overwhelmingly we did see that 26 percent at very much agree, and 43 percent somewhat agree.
“But if we split those responses, 93 percent of the females thought that yes, there are sufficient numbers of qualified, diverse candidates, whereas only 64 percent of the male responses felt that way.”
According to the survey, “Research has shown that Fortune 500 companies with the highest representation of female directors attained significantly higher financial performance, on average, than those with the lowest representation of female directors.”
DiversityInc Top 50 survey data found a correlation between women representation on boards and diversity-management performance. The DiversityInc Top 50, on average, has 34 percent more women on its boards than all other participating companies.
This resulted in Top 50 companies having 26 percent more women in level 1 management (CEO and direct reports) than all other participating companies. Level 1 is essential in promoting efficient diversity-management practices and holding the organization accountable for results. Currently only 4 percent of S&P 500 CEOs are female.
New York City Comptroller Scott M. Stringer told DiversityInc his office is an advocate for board diversity.
“Women currently represent 21 percent of S&P 500 directors, a number that is rising at a glacial pace,” Stringer said. “The message we are sending to corporate boards is that they need to move aggressively to nominate more diverse directors, or risk investors doing it ourselves.
“Increasing diversity in our boardrooms is critical to creating long-term shareowner value so that we can grow the City’s pension funds. One study after another shows that diverse groups make better decisions. Our focus is on accelerating the glacial rate of change – that’s why we launched the Boardroom Accountability Project to give long-term investors the right to nominate directors using the company ballot, known as proxy access.”
The PwC survey found that by the end of the 2016 proxy season, more than 40 percent of the S&P 500 had adopted a proxy access by law, compared to less than 1 percent two years earlier. PwC anticipates this trend to continue.
“I think the comments that we heard this year are encouraging,” Loop said. “There is more activity, more focus in bringing diverse board members onboard. So I think it’s a positive. I think we’re moving in the right direction.”
But, she also noted, “the progress is slow.”