Heightened stakeholder focus
Investors and other corporate stakeholders have long called for increased board diversity. Central to their argument is the belief that board deliberations benefit from issue-spotting and insights when there are diverse perspectives in the room. The study of more than 700 directors from around the world found that 38 percent of respondents were moderately concerned that the lack of diverse views in their boardroom hampers insightful discussions, identification of blind spots or other important issues. Investors are focusing on whether a board is fit for purpose, with the right collection of skill sets and reflects the customers, employees and communities it serves. Regulators are responding to investor demands for more clarity and comparable data on board diversity through enhanced disclosure requirements.
Progress … and work ahead
The BLC/AADF study found that three-quarters (76 percent) of public Fortune 1000 companies had at least one African American director serving on their board as of September 2022, compared with 61 percent at the end of 2020; 10 percent of board seats at these companies were held by African American directors. While these findings are encouraging, less than a quarter (22 percent) of companies have more than one African American director on their board.
Representation by gender and age
African American directors tend to be younger, with a higher rate of gender diversity. In 2022, 28 percent of the directors serving on public Fortune 1000 boards were women. Among the African American directors, 40 percent were women. Nearly half of African American directors are under 60 years old. In addition, only 10 percent of the African American directors studied are 70 or older, compared with 20 percent of all public Fortune 1000 directors.
Representation by industry
African American representation varies widely by industry. In fact, 88 percent of companies in the financial industry have at least one African American director on their board. Engineering and construction companies are the least likely to have at least one African American director on their board.
Board considerations
KPMG’s discussions with investors and the large volume of shareholder proposals related to board diversity illustrate the heightened stakeholder expectations for progress and transparency in board diversity. Boards should consider the following three critical questions related to disclosure:
Does the current disclosure appropriately tell the board’s story? Shareholders and other stakeholders want to understand the board’s rationale on board composition and whether it is currently fit for purpose. If they are not getting an adequate picture from the board’s diversity disclosure, they will seek it from other sources, such as third-party agencies and advisors. It’s in the board’s best interest to ensure that its authentic story is expressed in regulatory disclosures as well as any shareholder engagement.
Is the board satisfied with the level of its disclosure? Global regulations related to board diversity disclosures, including Nasdaq’s Board Diversity Rule, and updated proxy voting policies of institutional investors and proxy advisory firms, reflect a desire for more comparable data and disclosure of board composition and diversity. Increased disclosure can hold companies accountable and track progress over time. Boards should be comfortable with the level of disclosure, which may go beyond regulatory requirements in some cases.
Does the board understand how it compares with its peers? Boards should benchmark how they compare with their peers. A 2022 KPMG BLC analysis found that 90 percent of S&P 500 and 69 percent of Russell 3000 companies disclosed their board’s race and ethnicity by individual category, by aggregating racial and ethnic categories, or both. Understanding data like this can be a starting point for a board discussion about the adequacy of disclosure beyond minimum regulatory compliance.
When it comes to board diversity, there is still much work to be done. In the current business environment, boards need directors with diverse backgrounds and perspectives. Heightened stakeholder expectations put a premium on the ability to think differently, challenge long-held assumptions and effectively calibrate strategy, risk and talent.
Stephen L. Brown is Senior Advisor, KPMG Board Leadership Center