Why America’s Corporate Boards Keep Failing to Diversify

The diversity commitment of Corporate America has been growing. According to a new study from The Conference Board, 2021 marks the first time that a majority of S&P 500 companies—59%—have disclosed the racial makeup of their boards. Increased transparency has been widely recognized as an important step toward equity and inclusion.

At the same time, The Conference Board’s study found that even with these increased efforts, from the S&P 500 companies that disclose this data, more than 75% of their board members identify as white. Another recent study from Spencer Stuart confirmed this same finding: while S&P 500 companies are adding more people of color to their boards, more than three-quarters of them are white and 70% are men.
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Nasdaq, in December 2017, filed a proposal at the US Securities and Exchange Commission to improve diversity on corporate boards. More than nine months after the initial filing, the SEC approved these rules in August 2021. All companies listed on Nasdaq are required to report board diversity every year. The boards must also have at least two directors who are from minority groups. This includes one female director and one LGBTQ+. Any company that fails to comply with this requirement will be asked to provide written explanations or alternative approaches to diversity requirements.

The measures were opposed by some, even the Republicans who sit on the SEC. Commissioner Hester Peirce registered her opposition in a lengthy statement that, among other things, argued that the new requirements “encourage discrimination and effectively compel speech by both individuals and issues in a way that offends protected Constitutional interests.” Others, such as Harvard Professor Jesse Fried, refuted Nasdaq’s claims that diverse boards are linked to enhanced financial performance, arguing that they do not result in higher stock prices, “the outcome investors actually care about.”

These new rules have been challenged by two groups. On October 5, The National Center for Public Policy Research submitted a petition for review to the U.S. Court of Appeals for Third Circuit. The petition was filed in response to an earlier one by Alliance for Fair Board Recruitment. The Alliance has a history of opposing diversity measures: This past July, after California announced its own mandates to help diversity corporate boards, the Alliance took legal action against the state, calling the measures “unconstitutional and patronizing social engineering.”

While many have debated Nasdaq’s proposal and although many continue to do so, what’s missing is a larger conversation about board diversity. Rather than focusing on symptoms and which band-aids to apply, perhaps it’s time to ask a more pressing question: Why are corporate boards failing to become more diverse?

In 2020, the Institutional Shareholder Service’s ESG division found that underrepresented ethnic and racial groups make up only 12.5% of corporate boards. This percentage does not accurately reflect America’s composition, which includes 40% made up ethnic and racial minority groups. The 12.5% figure is only 2.5% more than 2015’s. Corporate boards remain overwhelmingly white, despite claims of change.

Their majority has remained male. In Deloitte’s 2017 study on Women in the Boardroom, women—who make up more than half the world’s population—made up less than 15% of board seats at the largest companies and less than 4% of board chairs. A second study revealed that female board members held just 16.9% of all global boards and only 5.3% of chair positions. This is a small gain in an industry striving for greater diversity. To quote the authors of a 2021 study by the Alliance for Board Diversity and Deloitte, “progress has been painfully slow.”

Outdated approaches to recruitment are the biggest obstacle to diversification. Most boards depend on their network to find candidates for board positions. Our social networks are not neutral. For instance, the 2013 American Values Survey found that 75% of white Americans have “entirely white social networks without any minority presence.” Juxtapose this with Deloitte’s 2021 report on board diversity, and it comes as no surprise that about 80% of board directors in the Fortune 100 and Fortune 500 are white. Their findings also show that white women make up the fastest-growing group of underrepresented groups on boards.

In addition to their relatively low numbers, 36% of underrepresented directors serve on multiple Fortune 500 boards, a “recycle rate” far higher than their white counterparts. The industry’s overreliance on a select few individuals who meet their diversity goals reveals a deeper recruitment problem. To expand their professional networks, board members must define the people who can add value to them. Until that happens, our pools will remain limited—and the ocean will remain largely untapped.

When working with corporations boards, we often hear this refrain. There just aren’t that many candidates to choose from. But there’s an affinity bias here that remains unchecked. The bias of board members towards what makes a good member of the board is often based on what they’ve seen in the past. It does not only refer to the visible characteristics that we possess; value is measured based upon what we know to be important. Our experiences limit our perspectives.

Recognizing our affinity biases is an important step in recruiting and keeping diverse talent. Once we recognize the barriers that prevent us from valuing diversity we can then work towards removing them. This is where we need to examine ourselves honestly and openly in order to determine our biases that might have an impact on our behavior and decision-making.

Another practical step is to understand what research says: Different types of diversity can bring value to the boardroom. Corporate boards need to expand their understanding of diversity in order to unlock its value. They must not focus on the singular aspects directors have to offer. Instead, they should balance the diverse skills, perspectives and cognitive approaches each director brings.

The third is to recognize their biases and expand their view of diversity. Corporate boards need to look into expanding their talent pipelines. There’s not a talent gap. There’s an equity gap. We have trouble finding marginalized people for our corporate boards because they are often referred to as marginalized. Directors of boards must make a concerted effort beyond their networks to find diverse candidates.

Yes, institutional changes are slow and change comes slowly. However, change is inevitable and the future is certain. The only question that remains is: Can corporate leaders be bold enough to make changes? Or will they stay stuck in the past.


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