Are boardrooms getting more diverse?

John Means Date published: Sep 27, 24

Corporate boardrooms have been expanding in recent years. In 2016, there was a significant spike in the number of director engagements for the specific purpose of expanding the board. 

In 2023 alone there were 779 director appointments citing the reason for engagement as enlargement of board, which translated to approximately 23% of total director engagements that disclosed a reason for appointment.

While boardrooms have been expanding, representation of women directors on corporate boards has also been increasing.  While gender parity remains far off, women now make up around 26% of board seats for large and mid-cap companies according to MSCI’s 2023 Women on Boards and Beyond Progress Report.  There have been several public initiatives in recent years to expand boards and increase diversity. 

Increasing diversity on boards has become a topic of interest throughout the past decade as companies realize that boardroom diversity may yield better corporate governance practices and financial outcomes.  A report from McKinsey in 2020 highlights how gender diversity leads to increased profitability by revealing that companies in the top quartile for gender diversity on their boards were 25% more likely to deliver greater than average profitability than companies in the bottom quartile.  There have been several actions within the public markets that are aiming to propel diversity initiatives forward for directors. 

The Nasdaq has implemented a comply or explain policy for companies listed on its exchange that requires them to have at least two diverse directors on their boards (one woman and one person of a minority group or member of the LGBT+ community).  This policy was approved by the SEC in 2021 and has since gone into effect. 

Similarly, Goldman Sachs has taken a proactive approach towards ensuring board diversity by refusing to take companies public whose boards do not include at least two diverse members.  Goldman has also implemented a program to place diverse directors on boards and has placed 50 members to date 

DEI backlash

Increasing strides to make the workplace and boardroom more diverse have not come without backlash.  Diversity, Equity and Inclusion (DEI) programs at Deere and Tractor Supply Co. have been rolled back amid criticism from conservative activists. 

Other companies, including Advanced Micro Devices and Motorola, were among those that have eliminated diversity measures relating to executive bonuses, signaling a broader resistance to new approaches towards diversifying the workplace.

This backlash towards DEI policies comes as the use of affirmative action to help determine college admissions was crippled by a Supreme Court decision in the United States brought down on June 29th, 2023.  

Boardroom diversity abroad 

While there has been both adoption and backlash towards DEI policies in the United States, there have been different approaches and standards set throughout Europe. 

A new quota of 40% women on boards has been established and is mandatory in Denmark, France, Italy and Norway.  The 40% target was also mandated in the UK under a “comply or explain” policy with a compliance date of 2023.  

There has been some evidence to suggest that greater gender diversity leads to better financial outcomes for firms including the Mckinsey report cited above. It will be interesting to see how new DEI initiatives impact the boardroom of the future. 

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