Diversity initiatives build up steam: Even as directors bemoan the focus.

• Author: Chase, Scott

Diversity--gender, racial, ethnic, age--appears on just about every list of key governance issues and concerns for public company boardrooms as we enter the third decade of the 21st century But making the "top five" on lists isn't the same as achieving broad consensus on importance and, more precisely, the path toward achieving a representative balance at the table.

Findings presented in PwC's Annual Corporate Directors Survey, published a few months ago, illustrate some of the trends affecting board effectiveness. PwC asserts that almost half of" directors (privately) give colleagues a failing grade," the highest level ever. More than half--56%--of directors say "investors devote too much attention" to ESG issues, up from just 29% last year.

On diversity, the PwC survey reveals, the same trends apply. While more directors than ever say board diversity has benefits, the number of directors ranking gender diversity as "very important" dropped eight points, from 46% in 2018 to just 38% this year, the lowest level in five years. On racial/ethnic diversity, the year-over-year scores dropped by the same amount percentagewise, from 34% to 26%. A side note to all of this: More than four-fifths of all directors "reject laws mandating board diversity, including 54% of female directors."

Nonetheless, PwC notes, "as the composition of boards slowly changes, more than ever, directors agree that board diversity has benefits. Large majorities say that it brings unique perspectives (94%), enhances board performance (87%) and improves relationships with investors (84%). More than three-quarters (76%) also agree that board diversity enhances the performance of the company.

Perhaps the most critical metric here is general agreement that boardroom diversity improves relationships with investors. Back in July, watchdogs noted that for the first time every company in the S&P 500 had a least one female director. Organizations such as State Street Global Advisors in 2017 and BlackRock last year unveiled policies targeted at increasing the diversity of boardrooms by withholding votes for incumbent directors. Last December, Glass Lewis issued a revised policy recommending votes against the nominating committee chair of boards with no female directors in 2019, a move that ISS will replicate beginning next month.

On the legislative front, one needs look no further than the Federal Register to see that diversity remains a hot button. H. R. 281, or "Ensuring Diverse Leadership Act of 2019," is a bill "to amend the Federal Reserve Act to require Federal Reserve banks to interview at least one individual reflective of gender diversity and one individual reflective of racial or ethnic diversity when appointing Federal Reserve bank president, and for other purposes." This bill has passed the House and awaits further action.

Another introduced bill, H. R. 1018, is titled "Improving Corporate Governance Through Diversity Act of 2019." Yet a third introduced bill, H. R. 3279, would "require the Securities and Exchange Commission to establish a Diversity Advisory Group to study and make recommendations on strategies to increase gender, racial, and ethnic diversity among the members of the board of directors of issuers, to amend the Securities Exchange Act of 1934 to require issuers to make disclosures to shareholders with respect to gender, racial, and ethnic diversity, and for other purposes." You don't need a weatherman to tell which way the wind blows.

It's clear that the issue of gender, racial and ethnic diversity in the boardroom and across the workforce is not going to go away, at least not until some sort of parity has been achieved. And the drumbeat for accountability in this arena is likely to intensify, despite signals from serving directors that they have gotten the bubble on this. A review of the comments of our 11 2019 Directors to Watch: Racial and Ethnic Diversity shows a clear trend toward redefining the diversity debate in terms of the overall character and culture of the corporation, with diversity writ large as one component of a responsive and responsible architecture of sustainability and cohesiveness.

Look for these leaders and others like them, now and in the future, to continue to drive boards toward a higher level of inclusion and effectiveness.

Punita Kumar-Sinha

Director, CFA Institute, JSW Steel, Blackstone-Embassy REIT, Infosys

Dr. Punita Kumar-Sinha has focused on investment management and financial markets during her career. She has served on more than 15 boards across India and North America in the past decade and currently, she serves on the board of governors of the CFA Institute, the global association of investment management professionals, as well as other boards including Infosys, JSW Steel and Blackstone-Embassy REIT.

She previously served on the board of the Torontolisted Fairfax India Fund. She has chaired audit, investment, and stakeholders relationship board committees for companies in multiple industries. Kumar-Sinha is a Managing Partner of Pacific Paradigm Advisors, and was formerly a Senior Managing Director at Blackstone and a Managing Director at Oppenheimer.

She is frequently quoted in the media and speaks at global conferences as an expert on emerging markets...