Diversifying Boards: Minimal Progress, but the Push for Change is Growing
story by: Victor Arias, Jr.
Well, it’s been one heck of a year. And we still have three months to go.
It’s been the year of of everything: a historic pandemic that has crippled the nation and the world, taking lives without prejudice; the spotlight on police brutality and the emergence of the Black Lives Matter movement, which has brought new focus on corporate America and its commitments of capital to affected communities, as well as commitments to hire more executives and elect more board members who are people of color; the unimaginable destruction of the fires ravaging the West Coast; and, perhaps most notably, the increased toxicity of our political discourse with a presidential election on the horizon, not to mention the death of the iconic Supreme Court Justice Ruth Bader Ginsburg.
What’s left: locusts?
And yet, we remain a nation of hope. We hope that the country can come together, especially in the spirit of representation of all the people. That includes true representation of our citizenry in the governance of our corporations. These directorships are critical to ensuring positive economic growth for corporate America, its consumers, and the communities it serves. However, to create more representation, especially of Latino women and men on corporate boards, there has to be an increased level of intentionality by those that influence the corporate governance ecosystem. Board chairs, nominations/governance chairs, CEOs, and current directors themselves are the people who can drive this change—if they choose to. The truth is that there has been very little improvement in the representation of Latinos/as on corporate boards in the past two decades.
In 8 years, representation of Latinos on boards has improved very little as shown on the graph, currently at 3.6% for the F500 and 3.1% for the F1000. Total seats of board members have decreased over that same time period so net new seats by Latinos has improved which is a good sign. However there are still 73% of F1000 companies and 65% of F500 companies that have ZERO Latinos/as on their boards including some consumer facing companies.
The question every year is resoundingly: “Why?” Here are a few trends that answer that question—and also why positive change, which has proven so elusive, may finally be on the horizon .
Trends
So: What has diversity meant for corporate America?
The #MeToo movement started a long-needed push to address gender inequities that have been present in society and in business forever. The campaign to elect more women to corporate boards snowballed, and as a result women have markedly improved their stead on corporate boards over the past three years. With that, many corporate boards were content to view diversity strictly from a gender lens. In other words, they were prepared to say, “Mission accomplished” and let that be that.
Then came the BLM movement, and the predictable knee-jerk reaction by corporate America on two fronts: How to fund initiatives within Black communities, and how to attract more diverse talent for their own companies and boards. The result has been a shift in board searches to focus on finding qualified people of color (mostly African-Americans); it would be a bonus if it were African-American women. This has been a giant and overdue step forward, but has also decreased the focus on also putting forward strong Latino and Asian candidates. The timely efforts by the LCDA and other partner organizations is now attempting to shed light on this issue.
But who exactly is being recruited for these new opportunies? One of the early outcomes has been that a larger percentage of underrepresented minority board members sit on multiple boards versus their white colleagues. In other words, the pool of minority candidates is remaining largely static, and justbeingdividedupintosmallerpieces.
Another trend is the increasing scrutiny on boards and their board selection processes by organizations such as Institutional Shareholder Services (ISS), other proxy advisors, and institutional investors like CALPERS, CALSTRS and other large state pension funds. Similarly, the recent trend by large investors to create funds dedicated to ESG have exploded. Companies like Black Rock are asking for change in their own boards to reflect society. Together, these groups are pressing ahead, with some success, on more transparency around board selection and disclosures in their proxies. They are specifically pushing on more diverse representation on the boards they are shareholders in or those for which they act as advisors.
Finally, there is a trend of legislating change, such as there has been in California. The state has enacted bills mandating greater gender diversity on public corporations headquartered in California, and to date have had success in creating change around this issue. An additional state bill specifically addresses the addition of underrepresented minority directors in addition to women. I have personally seen some public boards pivot in their board searches in response to these board requirements. Consumers are demanding it. Demographic changes are only going to increase this pressure over time.
The Push for Change
I have already identified a few pushes for change that I believe have some chance of impact and sustainability. But the most important ones are the following:
Legislation. I personally don’t believe that legislation is the long-term solution. But in the short term, there is no denying that it’s an initiative that is compelling public boards in California, for one, to act. In the long term, companies need to understand how diverse boards are a business imperative not only in terms of a social compact, but in terms of the bottom line. The impacts in California will spill over to board rooms, and these changes will be felt throughout the country as more activist shareholders create more momentum.
Institutional investors. These large pools of capital investment will continue to grow; with more and more pension fund dollars that belong to the ever-diversifying workforce of this country, workers will have more of a say about how and where their money is invested.
Advocacy Groups. The LCDA and the Latino Voices group, which includes prominent community-based, political advocacy and economic empowerment groups, are taking never-seen-before action in solidarity on this issue of underrepresentation by Latinos on corporate boards. Additionally, another group, the Alliance for Board Diversity, comprised of the Executive Leadership Council (ELC), Hispanic Association for Corporate Responsibility (HACR), Leadership Education for Asian Pacifics (LEAP), Catalyst, and the Diversified Search Group, has been particular effective at providing data and studies on these inequities, with the help of Deloitte.
It can sound like the same old tune every year. This time, however, we are hearing a crescendo, and a more regimented beat that makes one anticipate that this time there may be a different tune awaiting. The year 2020 will always be remembered as the year where “everything happened.” We believe that the year 2021 will bring much-needed change to corporate America, one that signals a realization that Latinos and Latinas have earned a seat at the corporate directors’ table.