Companies have responded to the recent focus on board composition and refreshment by onboarding new directors. According to the 2017 Spencer Stuart U.S. Board Index, 397 new independent directors were elected to S&P 500 companies in 2017, representing a 15% increase over the same period in 2016. Meanwhile, companies are expanding the kinds of attributes and skills in these searches, evidenced by a significant increase in the number of first-time directors, as well as an expansive view of C-suite experience as a pre-requisite to services. In addition, companies are carefully reviewing the attributes they need to reflect a growing and changing business environment and as a response to societal pressures.In the past few years, diversity in particular has become increasingly important to institutional investors, pension funds, employees and other stakeholders.
Companies over the past few proxy seasons have been receiving shareholder proposals, often from small coalitions or groups of investors, regarding board diversity and, in 2017, BlackRock indicated its support for a number of those resolutions. State Street Global Advisors announced that it voted against the chair or the entire nominating and governance committee at nearly 400 companies that lacked a single female director. In the 2018 proxy season, State Street indicated it voted against directors at more than 500 companies that failed to address board diversity, while simultaneously noting gender diversity improvements at over 150 companies that it addressed through either a withhold vote or engagement. In addition, in 2018, BlackRock amended its proxy voting guidelines to include an expectation of at least two women directors on each board and noted that it will continue engagement efforts, coupled with the threat of withhold votes for companies that ignore its comments.
Further, CalSTRS, CalPERS and the California Treasurer are increasing pressure, through both engagement and withhold votes, on companies to address refreshment. Glass Lewis has also indicated that it will factor diversity on the board into its voting recommendations.
Echoing some of the trends in other governance areas, coalitions of investors are also forming with the goal of promoting board diversity. In July 2018, the 10-member investor coalition with a combined $300 billion in assets, under management known as the Midwest Investors Diversity Initiative, publicly announced efforts to increase racial, ethnic and gender diversity through model checklists and best practices.