Institutional Investors Lead Push for Gender-Diverse Boards
The Harvard Law School Forum published a bylined article co-authored by Anthony Goodman and Jack "Rusty" O'Kelley III, on how "Institutional Investors Lead Push for Gender-Diverse Boards." The article is excerpted below.
Based on our discussions with leading investment management firms and pension funds, it is clear that concern for gender diversity at the board level is not unique to SSGA or BlackRock. Rather, it is now a recognized priority for most institutional investors, as evidenced by the Investor Stewardship Group’s February 2017 Principles of Corporate Governance (discussed on the Forum here), which state that “a well-composed board should also embody and encourage diversity, including diversity of thought and background.”
Boards that fail to meet SSGA’s suggested 15% threshold should therefore expect increasing pressure from institutional investors to, in the near-term, communicate plans and targets for improving gender diversity to investors and, in the longer-term, demonstrate results. To this end, we believe clients should consider the following actions:
- Broaden the approach for evaluating director candidates: Many companies cite a limited pool of suitable female director candidates as the primary obstacle to improving gender diversity. This is often the result of a narrow definition of criteria for the role that inherently disadvantages female candidates. For example, requiring that director nominees have public company P&L ownership experience above a certain size (e.g., $10B) immediately reduces the number of eligible women, without necessarily improving the quality of the pool. Broadening the criteria to include divisional CEOs with significant P&L responsibility (above $3B) widens the pool of eligible female candidates. Boards should screen for the types of skills and competencies required by the company’s strategic context and be open to leaders in staff functions such as finance, marketing or operations to increase the talent pool of diverse candidates generally.
- Take a longer-term approach to board succession: If each board search is treated as an individual event, there will be a tendency to develop criteria for the role that exclude potential candidates. If boards instead consider the next 2-3 vacancies that will occur over a few years, and develop a set of specifications to meet their emerging strategy, it is easier to ensure a pool of diverse candidates.
To read the full article, click here.