September 26, 2017
See How Gender Diversity on Boards is on the Upswing
Diversity is an important topic in today’s corporate governance discussions, particularly since investors are paying attention to it. In this Farient Brief, we take a look at trends in gender diversity on boards across three stock indices from 2007 to 2016.
“We have heard on numerous occasions that companies want to nominate women directors, but women with the right qualifications are hard to find. If there is a shortage of women directors, why are we not seeing that play through in the data? The three indices we analyzed show that companies have made progress on gender diversity and managed not to rely on the same candidate pool for filling those roles. The rate of change and how many companies have decided to pursue gender diversity is likely more a choice based on variables other than the pool of qualified candidates.” – Zanvi Patel, Partner, Farient Advisors
Among the companies in the S&P 500, MidCap 400 and SmallCap 600, gender diversity on boards varies meaningfully. The largest companies, as captured in the S&P 500, have the greatest percentage of women directors at approximately 22 percent. The MidCap 400 and the SmallCap 600 are at approximately 19 percent and 16 percent, respectively. The 22 percent represents 1,163 directorships which are filled by 934 women, an average of 1.25 board assignments per woman. The result is similar to the 1.17 assignments per individual male director.
Despite still having work to do to increase the gender diversity of boards, steady progress has been made over the past decade. For the S&P 500, 2016 represents a 40 percent increase from 2007, when the S&P 500 had women directors in only 16 percent of chairs. The other two indices show an increase of more than 60 percent from 2007. While this progress appears impressive for the smaller indices, considering that 37 companies in the MidCap 400 and 141 companies in the SmallCap 600 have no women directors, a fair number of companies are still not getting the message.
For those companies that have taken action, an important question to ask is how they proceeded to increase gender diversity on boards. For example, when considering that S&P 500 Boards have grown from an average of 10.25 directors in 2007 to 11.16 directors in 2016, it begs the question: “Instead of pushing board refreshment, are companies adding board seats and filling them with women directors with the intention of increasing diversity?” We explore this question in the next Farient Brief, where we will take a look at “churn” of directors and how that has changed the gender diversity of boards over time.