Pressure Mounting for Board Diversity
Boards will need to take diversity more seriously in 2021.
On Dec. 1, Nasdaq filed a proposal with the Securities and Exchange Commission that would require its listed companies to disclose diversity statistics about their board’s makeup, and include at least one female, and at least one minority or LGBTQ, board member. Adoption would be based on the company’s listing tier on Nasdaq’s exchanges, but boards would have at most two years to comply following the SEC’s approval.
This is just the latest in a series of requirements that state legislatures and outside stakeholders are placing on corporate boards nationwide.
California and Washington have both passed gender diversity requirements for companies headquartered in their states, and others have introduced similar legislation. Goldman Sachs Group announced earlier this year that it will only take companies public that have at least one diverse board member — a low threshold, to be honest. And in November, Institutional Shareholder Services reiterated that it would vote against the nominating chair of companies on the Russell 3000 and S&P 1500 that lack female directors; after February 2022, this will include boards that lack racial or ethnic representation.
Bank Director’s 2020 Governance Best Practices Survey found that many banks have moved in this direction: 39% had several diverse members, based on gender, race or ethnicity. Another 43% had one or two diverse directors, but roughly a third of that group didn’t plan to recruit more. Almost 20% didn’t have any diverse board members; these were primarily — but not exclusively — smaller institutions under $500 million in assets.
I spoke with Piermont Bank CEO Wendy Cai-Lee recently, who pointed out that because the market doesn’t reward diversity, there is slower progress toward these goals. “When you're not on the hook for it, that change tends to be slower,” she said. “It costs money [and] time to make those changes.”
Some boards have been proactive, examining their composition and conducting assessments to ensure they have the appropriate mix of active, engaged directors with diverse perspectives and backgrounds. These boards, I believe, will weather these changes more quickly and effectively, while the rest will be forced by various stakeholders — governments, shareholder advisory firms and the like — to diversify.
The clock is ticking.
• Emily McCormick, vice president of research at Bank Director
