Fortune 500 Boards May Not Be Truly Diverse Until 2074

Linda Akutagawa, chair for the Alliance for Board Diversity; President and CEO of LEAP (Leadership Education for Asian Pacifics) shares how the pandemic has affected board diversity.

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According to a multiyear study published by the Alliance for Board Diversity (ABD), in collaboration with Deloitte, the number of Fortune 500 companies with over 40% diversity on their boards is nearly four times higher than it was in 2010, but overall, progress has been incremental and proportional representation remains decades away.

It will take until 2074 before the number of Fortune 500 board seats held by minorities reaches the ABD's aspirational 40% board representation rate.

FEI Daily spoke with Linda Akutagawa, chair for the Alliance for Board Diversity; President and CEO of LEAP (Leadership Education for Asian Pacifics), about the “Missing Pieces Report: A Board Diversity Census of Women and Minorities on Fortune 500 Boards” and how the pandemic may have affected board diversity.

FEI Daily: How is diversity defined in this context?

Linda Akutagawa: In the Missing Pieces report, diversity is defined as women and/or minorities in this context.

FEI Daily: According to the study, minority men show no substantive increase in their rate of representation in either the Fortune 100 or 500. What explains this and are companies addressing it?

Akutagawa: Given the focus on gender diversity over the last few years, it’s no surprise that we have seen an increase in women appointed to boards. Minority men have recorded a lower rate of increase since 2018, relative to women. That being said, in total, minority men still occupy more seats than minority women in both the Fortune 100 (18 new seats for men and 11 seats for women) and Fortune 500 (111 seats for men and 74 seats for women).

While our Missing Pieces report does not cover what factors can be attributed to the slower growth in representation of minority men, it’s important to keep in mind that the data was collected before June 30th, 2020. The events of the summer of 2020 may have been a tipping point for the large array of factors that brought to the forefront already existing needs for change in boardroom composition. With a stronger focus on racial equity across the country and in the business community, we fully anticipate the acceleration of minority men and women in the coming years. In fact, recruitment for African American/ Black directors in the S&P 500 company boards increased by nearly 200% according to a report published by ISS Corp Solution earlier this month.

FEI Daily: Based on the ISS Corp Solutions data, women and minority board members are more likely than White men to bring experience with corporate sustainability and socially responsible investing, government, sales and marketing, and technology in the workplace to their boards. One ABD concern is a possible overreliance on women and minorities to provide those skills. Tell me more about that concern and the implications.

Akutagawa: Boards must do more than pull from one team – they need to look at the entire league system instead. My concerns are twofold: 1. women or minorities candidates may be selected only for certain skills and experiences (e.g. CSR, ESG, technology acumen), therefore pigeonholing them into narrow roles in the boardroom, and 2. similar to the “recycle rate” issue among minority board members, this could lead to an overreliance on specific individual board directors who are seen as the go-to director with a key experience or skill, and this may result in boards drawing candidates from the same pool of minority candidates. We don’t have a supply issue; the pool of talented, board-ready, and board qualified candidates is teeming with women and minorities.

FEI Daily: What was the most surprising data point?

Akutagawa: What surprised me the most was that there are 29 companies that reached a 60% or more diversity rate of women and minorities on their boards, which is much higher than the average 38% representation rate for women and minorities. Typically, when a board has three or more board members who are women and/or minorities and a critical mass is formed, this leads to increased openness to new ideas and comfort with different perspectives, as well as momentum for positive change, all of which ultimately will translate into positive marketplace performance and financial value for the investors. That’s good for everyone.

FEI Daily: How might the pandemic have affected board diversity – if at all?

Akutagawa: While the world will never be the same post-pandemic, the more relevant trend in corporate America has been evolving opinions among investor groups and overall market sentiment. The murder of George Floyd spurred a racial justice movement driven primarily by Gen Y and Gen Z, many of whom are more socially conscious and less patient with a slow pace of change. They expect action, and fast, from their employers, managers, executive leaders, and corporate boards. While our report has outlined changes over the years, we hope to see continued momentum in the coming years.

FEI Daily: For anyone looking to join a board (specifically with a finance/accounting background), what are the big takeaways here?

Akutagawa: Networking, networking, networking! This is still the big takeaway. Expertise in finance and accounting are a part of any board skill matrix; but who you know is just as important as what you know. One of the reasons for higher recycling rates of women and minority board members is that people still turn to the people they know and trust. For anyone looking to join a board, the key is to network with boards members as well as “over-boarded” members and become the board-ready candidate they would recommend.