Nearly two-thirds of companies in the Russell 3000 index lacked a Black director in 2020, according to data analyzed by Institutional Shareholder Services, a proxy adviser. The year before, about 70% didn’t have one.
But the recent clamor for greater racial justice and increased investor pressure has convinced many U.S. businesses they need to reshape their largely white and male boards. From June to November 2020, at least 35 companies named one or more Black directors to their boards. They included Allstate Corp. , Procter & Gamble Co. , Ralph Lauren Corp. and Zillow Group Inc.
Nasdaq Inc., meanwhile, proposed a new rule in December that would require all companies listed on the exchange to have at least one female director as well as a board member who is a racial minority or who self-identifies as lesbian, gay, bisexual, transgender or queer. The proposal, if approved by the Securities and Exchange Commission, would follow California’s enactment of a similar requirement earlier in 2020 that required publicly traded companies based there to appoint at least one director with a racial, ethnic or other minority background by year-end.
A conservative legal group sued to block the California measure, saying in a filing last fall in Los Angeles Superior Court that the law is unconstitutional.
While studies have shown a link between board diversity and better financial performance, obstacles to board shake-ups remain. Only 34% of directors, for example, say it’s very important to have racial and ethnic diversity in the boardroom, a 2020 survey of 693 U.S. board members by PricewaterhouseCoopers found.
In addition, board turnover has been low for years—and that reduces opportunities to recruit new members. A key reason: Just 16% of directors on boards with age limits are within three years of mandatory retirement, executive recruiters Spencer Stuart reported in a 2020 study of S&P 500 companies.How to Increase the Number of Black Board Members – WSJ