Diversity Leads Top Priorities for S&P 500 Companies
The National Association of Corporate Directors (NACD) recently released its findings in the 2020 Governance Outlook: Projections on Emerging Board Matters. The annual survey aggregates insights and projections around top corporate trends; this year’s survey focused on topics around preparing for another recession, strategic business risks, regulatory changes, legal risks, board composition, the digital frontier, ESG and engagement, and water scarcity risk. These topics and the presentation of findings are “designed as a collection of observations to help corporate boards prioritize their focus in 2020 and increase in their awareness of emerging issues, through both detailed topical analysis and coverage of broader governance implications.”
NACD’s findings are especially insightful as organizations look to reinvigorate their strategic plans and board composition. This year’s top recruiting priority amongst surveyed NACD members is to increase diversity, especially gender diversity. Currently, more than 90% of S&P 500 boards have two or more women directors, which is an increase from 86% in 2018 and 53% in 2009. Racial and ethnic diversity also appears as a recruiting priority, as one in four new S&P 500 directors added in 2019 are minorities (defined as African-American/Black, Asian, and Hispanic/Latino), which is a promising increase from 19% in 2018. In addition, amongst the top 200 S&P 500 companies, 19% of all directors in 2019 are male or female minorities, rising from 17% in 2018. “The focus on increasing gender and ethnic diversity will inject a broader set of functional, industry, and generational perspectives into the boardroom,” says NACD.
The primary challenge to diversifying board composition is low turnover and long tenures. While there are a record number of female directors in the incoming 2019 class, the overall representation of women on S&P 500 boards has increased incrementally 2% (from 24% in 2018). This is in large part due to the age changes for mandatory retirement. The average director’s age is 63-years old, and many boards continue to raise retirement ages (i.e., to 80-years old). With low turnover and a longer tenure available, the opportunity to refresh the board of directors is impacted.
NACD recommends the following refreshment strategies to enhance the short-and long-term approaches to boards’ composition:
- Assess skills and incorporate results from performance assessments into board succession planning – The most effective boards utilize insight from the results of the board and individual-director assessments as a fundamental element of strategic board-succession planning.
- Set expectations about tenure – Successful boards are open to discussion and build consensus around both appropriate director turnover and refreshment, and how they will be achieved.
- Embrace a continuous improvement mindset – High-performing boards assess the culture and dynamics in the boardroom to understand how they can operate more effectively.
A board’s composition can be a strategic asset to an organization’s success, through diversifying skill sets, experience, and generational perspective. A multiyear view of departures and assessments can help in strategically planning for board openings so that each director can be optimized to best position the company for longevity and leadership.
