With diversity front and center in corporate governance and legislation, Equilar has conducted an analysis on the prevalence of ethnically diverse directors across the Equilar 500 and Russell 3000 indices. The study results show that larger companies are leading the way towards increased board diversity.
Board diversity continues to be at the forefront of corporate governance discussions. In today’s political and social climate, conversations about equality and representation are more important than ever. In 2018, the state of California passed Women on Boards (SB 826), requiring publicly traded companies with principal executive offices in California to meet specific criteria regarding the number of women on their boards. Shortly after, AB 979 was passed requiring the same companies to meet similar requirements regarding directors from underrepresented communities.
Following the implementation of the California legislature, Nasdaq proposed changes to its listing requirements surrounding board diversity. Under the new rules, companies listed on the exchange will need to have either one director who’s female and one director from an underrepresented community or disclose an explanation for why they cannot meet that criteria.
“Nasdaq’s new board diversity requirements will help move the needle around greater representation in the boardroom, but corporations and their executive decision-makers must not solely rely on Nasdaq’s criteria simply to meet the status quo,” said Michael C. Hyter, President and CEO at The Executive Leadership Council. “They must go beyond those expectations too in order to guarantee more sustainable and scalable boardroom diversity.”
However, recently on April 1, 2022, a Los Angeles superior court overturned AB 979. The judge justified this action by highlighting that AB 979 was not identifying specific areas where discrimination was occurring. According to the judge, the bill needed to expand on its criteria, perhaps by highlighting areas of discrimination by either geographic region or within specific industries—not a general statement regarding corporate boards within the entire state of California.
With diversity front and center in corporate governance and legislation, Equilar has conducted an analysis on the prevalence of ethnically diverse directors across the Equilar 500 and Russell 3000 indices. The study results show that larger companies are leading the way towards increased board diversity. In this analysis, a director is considered diverse if they identify as either female or ethnically diverse. At the end of 2021, 44.6% of board seats in the Equilar 500 were composed of diverse directors compared to 36.1% of Russell 3000 board seats. Additionally, 21.9% of the Equilar 500 board seats were held by ethnically diverse directors as opposed to 15.1% of the board seats across the Russell 3000.
During 2021, both Equilar 500 companies and Rusell 3000 companies made strides to increase the representation of ethnically diverse directors. Between Q1 and Q2, the representation of ethnically diverse directors increased almost one percentage point within the Equilar 500, compared to 0.3 percentage points within the Russell 3000. Following this jump, however, the Equilar 500 still continued to increase the prevalence of ethnically diverse directors, but at a decreasing rate, rising by 0.2 percentage points from Q2 to Q3 and 0.1 percentage points from Q3 to Q4, settling at 21.9%.
During 2021, both Equilar 500 companies and Rusell 3000 companies made strides to increase the representation of ethnically diverse directors. Between Q1 and Q2, the representation of ethnically diverse directors increased almost one percentage point within the Equilar 500, compared to 0.3 percentage points within the Russell 3000. Following this jump, however, the Equilar 500 still continued to increase the prevalence of ethnically diverse directors, but at a decreasing rate, rising by 0.2 percentage points from Q2 to Q3 and 0.1 percentage points from Q3 to Q4, settling at 21.9%.
Although representation is not growing exponentially across either index, it is encouraging to see even small increases of ethnically diverse directors across various companies and industries. The increases, though slow, are seen across most underrepresented groups. By the end of Q4 2021, Black/African American (6.2%) Russell 3000 board members were the most prevalent among all ethnicities, followed by Asian/Pacific Islander (5%) and Hispanic/Latino (2.7%). Black/African American directors also saw the largest increase in representation since the start of 2021, from 5.6% in Q1 2021 to 6.2% by the end of the year.
