Taking control of your board search.

• Author: Marcec, Dan

In the age of activism and shareholder engagement, the balance of power in corporate governance is shifting toward investors. With that shift, corporate boards are coming under scrutiny for their board composition and board diversity, among many other strategic initiatives.

As reported in the Equilar Gender Diversity Index (GDI), at the current rate of change it would take nearly 40 years to reach gender parity on Russell 3000 boards. In 2016, just 15% of directors on those boards were females, increasing at about one percentage point a year. While some companies are slowly adding females and other diverse directors to their boardrooms, others are taking on little responsibility and accountability. And investors who care about these issues are growing impatient and working to influence change.

There has been movement on the regulatory and legislative front to create more transparency around board diversity. Mary Jo White was a champion for increased diversity disclosures in her time as SEC Chair, and after her departure. Rep. Carolyn Maloney (D-NY) also introduced the Gender Diversity in Corporate Leadership Act (H.R. 1611) on March 17, 2017. Basically, the bill proposes that the SEC push policies that would increase female representation on corporate boards and require disclosure on these policies.

There's little expectation that these rules and regulations will come to fruition in the current political climate, but ironically, pushback (or inaction) in Washington may spur investors to take matters further into their own hands. There have been no signs of slowdown from the major institutional investors on diversity initiatives, as evidenced by State Street's "Fearless Girl" statue on Wall Street, and BlackRock's updated voting guidelines centered on board diversity.

Despite some of the rhetoric out there, investors say boards are not clamoring for more diversity as a general rule, nor are they particularly interested in proactively addressing board evaluation and refreshment. After all, if the company and its board are performing well, why should they consider shaking things up?

This is not altogether an unreasonable question. However, as owners of the company, shareholders who are not in the boardroom have a right to transparency around how the board operates on a day-to-day basis. And the less information they have, the more they infer.

A rigorous board assessment and refreshment strategy is not about adding new...