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ESG investing: Spotlight on board composition

It’s the annual proxy season, and many eyes are on investor votes concerning a variety of corporate matters including the election of board members.


Suzanne Mestayer

In a world increasingly focused on diversity, equity and inclusion, we may wonder to what extent these concepts are embraced within the corporate boardroom. What is the composition of most boards? Are we still seeing members who represent a “first” in a category?

This topic is centered on the G (governance) of ESG investing. Our firm has researched, monitored, and presented the topic of board composition to groups for the past six years, with specific focus on gender. However, we recognize that gender alone does not fully represent diversity. It includes minority and ethnic representation, as well as diversification of skills, age, and functional experiences. The belief, is that these differences provide for better decision making, mitigation of risk, and improved performance.

Looking for data that accurately presents the “state of the boardroom” on gender and minority diversification, we can begin with statistics from the S&P 500 companies. For the past 35 years, Spencer Stuart has published a Board Index that comprehensively reports trends and statistics on the topic of board governance within the S&P 500.  The 2020 report was recently released, and it reveals the following about diversity:

  • Every S&P 500 company had at least one woman on its board, with 39% of boards having three women and 20% of boards having four women. On average, three board seats were occupied by women.
  • In 2020, women held 28% of board seats, while they held 16% in 2010, a 75% increase.
  • Of the top 200 (as measured by revenue) of the S&P 500 companies, 97% had at least one minority director in 2020, an increase from 89% in 2010.
  • Of the same top 200 companies, all minorities together held 20% of board seats.
  • Of new independent board members appointed during 2020, 59% were women and/or minorities. 22% were minorities (12% men and 10% women) and 47% were women.

The data is encouraging, yet it shows more progress for women in the past 10 years than minorities. In addition, the commentary in the report notes that the low turnover of existing board members opens few opportunities for new board members each year. Some companies have increased the size of their board in order to reach their desired diversity levels.

What is not considered above, however, are statistics relating to public companies that are smaller than the S&P 500. If we broaden the database to the 3,000 largest public companies, we find less progress with both gender and minority board representation. The larger companies are clearly setting the pace.

The investing public is holding companies accountable for all aspects of ESG, particularly through the stewardship of institutional managers ( e.g. Blackrock, Vanguard, State Street, etc.). Board diversity is an important part of the Governance evaluation. With the increasing responsibilities of board members for oversight of corporate activities, the diversity of the board will likely remain a best practice well into the future.

Suzanne T. Mestayer is managing principal of ThirtyNorth Investments, LLC. 

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