But racial and ethnic diversity representation needs work.
The recently released Board Monitor US 2022 Report, from senior-level executive search and consulting firm Heidrick & Struggles, revealed encouraging results for Fortune 500 boards regarding first-time directors, women board members and those with sustainability and cybersecurity experience. But the report indicated a degree of stasis when it came to diversity in the boardroom.
The study found that 43% of seats were filled by first-time directors, the highest ever reported by Heidrick. According to the firm, this indicates a dedication to diversifying experience and background on boards. Lyndon Taylor, lead of Heidrick & Struggles’ diversity & inclusion practice, believes that the results show a growing need for board experience in the areas of digital, cybersecurity and sustainability. “These first-time directors are also bringing C-suite experience from roles other than the traditional path of CEO or CFO. That’s a critical move as boards consider a broader range of candidates to advance progress on diversity.”
Fewer CEOs and CFOs
Indeed, among the experienced board members on Fortune 500 companies, 52% have CEO experience, while 24% have spent time as CFOs. Different priorities are being revealed among the first-time directors, with only 24% having served in the CEO role and 9% having worked in the CFO position. “Companies are increasingly seeing the value in equipping their boardrooms with a wider range of functional leadership experiences,” says Taylor. “Directors are starting to want – or even require – other areas of expertise and perspectives around the board to help deal with timely issues.”
The Prominence of Cybersecurity and Sustainability
What are those timely issues that boards are looking for help on? At the top of the list are cybersecurity and sustainability. The number of board seats held by directors with cybersecurity experience rose from 8% in 2020 to 17% in 2021, while the percentage of board members who had helped drive sustainability efforts spiked from 6% to 14%. Taylor says these increases are a response to the growing number and sophisticated nature of cybersecurity threats as well as the increased attention that both shareholders and stakeholders are paying to sustainable business practices. “Boards understand that sustainability is quickly becoming a core business pillar and is increasingly instrumental in corporate access to capital. Especially as shareholder and stakeholder scrutiny of companies’ carbon-zero pledges intensifies and as the SEC prepares to launch a framework of sustainability disclosure regulations, it’s clear that sustainability must move up the corporate agenda.”
Efforts Toward Racial and Ethnic Diversity Struggle
The report’s findings on diversity of board composition were a mixed bag. There’s good news, with a record share of seats belonging to women. The bad news? The share of seats filled by Black directors sits at 26%, down from 28% in 2020, while just 9% of Fortune 500 board members are Asian or Asian American and just 6% are Hispanic or Latinx. While Taylor lauds the rise in women directors and is encouraged by a sustained number of Black board members, he stresses that boards must work to bolster overall diversity. “Representation of Asian or Asian American and Hispanic and Latinx directors has not improved over the past 13 years. As these communities grow in representation, it’s important that they have greater representation in the boardroom.”