Directors to Watch: Racial and Ethnic Diversity: Board diversity efforts continue despite pushbackfrom some quarters.

Author:chase, Scott
Position:DIRECTORS TO WATCH
 
FREE EXCERPT

Racial and ethnic diversity in the boardroom doesn't get as much attention as gender, but there's a growing movement to focus more on these groups.

But as with nearly every movement, there's always some sort of pushback and the accelerating effort to broaden the base of talent and diversity on public company boards has created a school of thought--and accompanying research--that suggests age, ethnic and gender diversity in and of itself does not contribute to higher earnings, increased shareholder value and deeper marketplace understanding.

But in this case the cat is out of the bag and there's no turning back on the benefits of diversity overall.

For example, according to Equilar research, 45% of large-cap companies voluntarily disclose board composition in terms of gender diversity, and about 40% do so in terms of race and ethnicity.

Equilar's report, which incorporated findings from Semler Brossy Consulting Group and KPMG's Board Leadership Center, acknowledges that the data on diversity may be skewed in that there is no legal requirement to make these disclosures and companies that do divulge this information have, according to Belen Gomez, Equilar senior director for board services, "a good story to tell."

"Study after study has demonstrated a positive association between business results and boards that include women," adds Susan Angele, senior advisor, board governance, KPMG's Board Leadership Center. "While racial and ethnic diversity are equally important to strong business results, there have historically been challenges to similar research due to smaller sample sizes and lack of disclosure. As an additional measure of diversity, sexual orientation has even less visibility."

The research, however, "does show that diverse teams tend to perform better overall, and as disclosure of these facets of diversity becomes more common, the amount of research confirming the association between board diversity and long-term value is likely to increase," she notes.

Large investors understand this.

According to a Corporate Governance Update published in September from Wachtell, Lipton, Rosen & Katz partner David A. Katz and consulting attorney Laura A. Mcintosh, significant institutional investors and asset managers "are engaging in deliberate, proactive and effective campaigns for increased diversity on public company boards." BlackRock, State Street Global Advisors and Vanguard all have taken public steps this year to promote and advocate for greater board diversity.

For example, BlackRock has noted that, "over the coming year, we will engage companies to better understand their progress on improving gender balance in the boardroom."

And Vanguard, in an open letter, noted that one of the four pillars it will use to evaluate a public company's corporate governance is whether there is "a high-functioning, well-composed, independent, diverse and experienced board" with effective ongoing evaluation practices.

"If it once was a check-the-box exercise, board diversity is now a business priority," says Blair Jones, managing partner, Semler Brossy Consulting Group. "Boards understand the importance of diversity in fostering better conversations, better representing employee and customer perspectives and driving better results. Boards want the benefit of diverse experiences and are becoming more open to sourcing them from less traditional backgrounds."

Beyond ethnic and gender diversity, the "next big thing" regarding board service and the ever-watchful eyes of major investors may be renewed and vigorous calls to limit board service. The issue of directors who were on too many boards, known as "overboarding", was red hot a few years ago because it was identified as a key contributor to ineffectiveness on the part of many directors.

Nearly four-fifths of S&P 500 companies already have policies in place to limit members' outside directorships, but directors should be mindful that no threshold has been established, thus making this concern a bit of a moving target. It may well be that less is more when it comes to board service.

Here's our "Directors to Watch" list, including directors who not only exemplify the very best of board service, but also bring racial and ethnic diversity to their boardrooms:

Charisse R. Lillie

Director, Penn Mutual Life Insurance Company, PECO

Charisse R. Lillie is the CEO of CRLCONSULTING LLC., providing corporate governance and diversity advice to corporations and nonprofits.

She was a senior executive at Comcast Corporation from 2005 to 2017, including service as the SVP of human resources of Comcast Cable and VP of Community Investment of Comcast Corporation. She was a partner in the law firm of Ballard Spahr LLC for 13 years, and was chair of the litigation department from 2003 to 2005.

Charisse is a member of the boards of the Penn Mutual Life Insurance Company and PECO, an Exelon Corporation. She serves on corporate advisory boards for PNC Bank and Independence Blue Cross.

She is a graduate of Wesleyan University, Temple Law School andYale Law School.

Diversity at every level: The corporate boardroom is the scene of discussion of major issues such as diversity and inclusion, privacy rights of customers, assessment and management of risk, marketing to multiple generations of customers in the age of social media, use of big data to make decisions about product development, cybersecurity challenges and succession...

To continue reading

FREE SIGN UP