United States

Paromita (Mita) Chatterjee, Associate
Paul Hastings (Washington, DC)*

Although there has been recent progress, women still remain underrepresented on corporate boards in the United States.  As of 2017, women held 19.8% of board seats at companies in the Fortune 1000, a list of the largest U.S. companies ranked by total revenue.1  However, encouragingly, in the first five months of 2018 women accounted for 248, or 31%, of newly appointed board directors at the 3,000 largest publicly traded companies, according to an analysis of corporate filings by ISS Analytics, the data arm of Institutional Investor Services. 2

According to board recruiters, shareholder pressure, along with the #MeToo movement, has fueled some of this momentum.3  However, less attention has been given to the attainment of racial or ethnic diversity in the boardroom.  Black Americans comprise 10% of U.S. graduates but hold only 4% of senior-executive positions; Hispanics and Latinos comprise 8% of graduates versus 4% of executives; and Asian Americans represent 7% of graduates versus 5% of executives.4 

Empirical Studies on Board Diversity

Empirical studies have provided a number of business reasons for diversity on corporate boards, with some showing that boards whose members have a variety of gender, racial, and sexual orientation backgrounds ultimately outperform homogenous boards.  For instance, a 2018 report by McKinsey & Company (building on its 2015 report) “reaffirms the global relevance of the link between diversity—defined as a greater proportion of women and a more mixed ethnic and cultural composition in the leadership of large companies—and company financial outperformance.”5  The analysis draws on a dataset of more than 1,000 companies covering 12 countries, and found that companies in the top quartile for gender diversity on their executive teams were 21% more likely to experience above-average profitability than companies in the fourth quartile.6

Morgan Stanley had similar findings in its 2016 report, concluding that companies with more diverse gender populations (both inside and outside of the boardroom) tend to perform better.  The report was based on a proprietary gender-diversity framework that ranked more than 1,000 stocks globally. According to the report, “[h]igh gender diversity companies have delivered slightly better returns, with lower volatility, compared with their low diversity or sector peers, and they have moderately outperformed on average in the past five years.”7 Further, “[t]he top fifth of selected companies that consistently rank gender diversity among their priorities, with data to back it up, outperformed their peers based on volatility and risk factors.”8  It should be noted that, while some research has found that diverse boards have a positive impact on a company’s financial performance, others have not; the differing results depend in part on how financial performance was defined and what methodologies were used.9 Aside from financial performance, however, research identifies a number of other business benefits to board diversity, including better understanding of consumer preferences, a stronger mix of leadership skills, and improved risk management.10  According to recent reporting, some firms are demanding greater representation in the boardroom in the wake of sexual harassment scandals.11  

Studies have also looked at the root causes of underrepresentation of women in the boardroom.  The United States Government Accountability Office (GAO) – the nonpartisan U.S. agency often called the “congressional watchdog” – found that there were several factors that hinder increases in women’s representation in the boardroom, including “boards not prioritizing diversity in recruitment efforts; lower representation of women in the traditional pipeline for board positions; and low turnover of board seats.”12

The corporate pipeline problem was also identified in a 2017 study entitled “Women in the Workplace” (the “WiW Study”), a comprehensive study of the state of women in corporate America conducted by a partnership of McKinsey & Company and LeanIn.Org.13

The objective of the WiW Study was to “give organizations the information they need to promote women’s leadership and foster gender equality.”14 The WiW Study surveyed 222 companies in the United States that employ over 12 million people; more than 70,000 employees completed the survey which focused on their experiences regarding gender, opportunity, career and work-life issues.15  According to the WiW Study, “Women remain significantly underrepresented in the corporate pipeline. From the outset, fewer women than men are hired at the entry level, despite women being 57 percent of recent college graduates. At every subsequent step, the representation of women further declines, and women of color face an even more dramatic drop-off at senior levels.  As a result, one in five C-suite leaders is a woman, and fewer than one in thirty is a woman of color.”16 The WiW Study concludes that, “Until we treat gender diversity, and diversity more broadly, like the business imperative it is, true progress will be hard to achieve.”17

Federal Efforts Stall, But States and Cities See Progress

U.S. Congress

Two initiatives supporting gender parity on corporate boards have been introduced in the U.S. House of Representatives. The Gender Diversity in Corporate Leadership Act—which was re-introduced in this Congress—aims to strengthen diversity disclosure requirements and bolster the SEC’s role in encouraging gender diversity.18 The bill also establishes an advisory group to study strategies to increase diversity among boards of directors and to release a report summarizing its findings and determinations.19 At the time of publication, it has six sponsors and has been referred to the House Committee on Financial Services, but no further action has been scheduled. A resolution introduced last session expressed that “corporations should commit to utilizing the benefits of gender diversity in boards of directors and other senior management positions.” The resolution has not been introduced in the current session.

SEC

Although Congress has been slow to enact legislation to address this issue, agencies within the federal government have started to take a closer look at the problem of board diversity.  In December 2015, the GAO released a report describing the lack of gender diversity within corporate boards. The report outlines the problem in very stark terms: “Even if every future board vacancy were filled by a woman, we estimated that it would take until 2024 for women to approach parity with men in the boardroom.”21

The SEC has made efforts to improve the diversity of corporate boards—most notably in 2009, when the Commission amended its regulations to require disclosure of a company’s consideration of diversity when identifying nominees for board member positions.22  Although the rules do not define diversity, numerous commenters cited by the Commission have made clear that investors are particularly interested in the disclosure of board policies regarding gender and/or racial diversity.23  While the former SEC Chair Mary Jo White announced that her staff was preparing recommendations for proposing the relevant rule to require more robust board diversity disclosures, 24 current SEC Chairman Jay Clayton pledged only to “monitor” the issue.25

Despite this, the SEC’s Advisory Committee on Small and Emerging Companies recently recommended that the SEC require companies to describe in their proxy statements the extent to which their boards are diverse, and to disclose the race, gender and ethnicity of each board member/nominee as self-identified by the individual.26 These recommendations may help to spur further progress.

U.S. Stock Exchanges

To date, U.S. stock exchanges have not taken the kind of action seen in other countries to address the lack of diversity on boards of listed companies.27 None of the U.S. stock exchanges require or encourage the disclosure of diversity policies as a requirement of a listing on an exchange.28 However, certain U.S. exchanges have taken steps to promote diversity and inclusion. For example, under the leadership of its first female CEO, Adena Friedman, Nasdaq has joined the 30% Club, an organization committed to working toward at least 30% representation of women on boards, and signed the Parity Pledge, which commits the company to interview at least one qualified female candidate for every open position at the VP level or above. 29 In May 2018, the NYSE named its first female president, Stacey Cunningham, in the entire 226 years of its history.30

State and Local Government

In August 2018, California’s legislature was the first in the country to pass legislation to institute gender quotas for boards of directors of public companies headquartered in the state. Under the legislation (S.B. 826), by the end of 2019 a public company that is headquartered in California must have at least one female director on its board (a corporation may increase the number of directors on its board to comply with this provision).31  By the end of 2021, corporations with more than 5 directors will be required to have at least 2 female directors or 3 female directors if the corporation has 6 or more directors.  The bill is on the Governor’s desk to sign as of the date of publication of our report. Governor Brown signed the bill into law on September 30, 2018, and in a signing message stated that, “Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.”. 32

Several other states around the country have focused their legislative efforts on voluntary guidelines to improve gender diversity on the boards of companies based in their states.  For example, in Illinois and Pennsylvania, resolutions were adopted encouraging publicly traded corporations in the state to reach certain percentages of women on their boards.33 In Massachusetts, a resolution encouraging greater gender diversity in the leadership of companies and state government was passed unanimously by the state legislature.34  

In Colorado, the General Assembly passed a resolution urging, within the three-year period from January 2018 through December 2020, companies with 9 or more director seats to have a minimum of three women on their boards; companies with 5 to 8 director seats to have two women on their boards; and companies with fewer than 5 director seats to have a minimum of one woman on their boards.35  Similar to resolutions passed in other states, Ohio and Maryland recently introduced resolutions urging all private and public companies and institutions doing business in these states to commit to increase the gender diversity on their boards of directors and in senior management positions, and to set and publish goals by which to measure their progress.36

On the local government level, New York City and Philadelphia each have taken steps to increase diversity disclosures by city contractors.37 The New York City Comptroller and New York City’s pension funds launched a Boardroom Accountability Project designed to enhance public disclosure reporting. The initial phase, which began in 2014, included pressing companies to make “‘proxy access’ – the right of large, long-term shareholders to nominate corporate board candidates on a company’s ballot – a market standard.”38

When the project began just 6 U.S. companies allowed proxy access. Today that number has increased to more than 524.  In 2017, the Board Accountability Project 2.0 launched and included an initiative to ask 151 companies to disclose the race, gender, and skills of their board members, as well as their process for adding or replacing board members.39  The results of the project were announced in June 2018: 35 of the targeted companies now disclose information on racial and gender diversity, and 49 of the companies have chosen 59 new directors who are women or minorities.40  In launching the program, New York City Comptroller Scott M. Stringer said, “we’re doubling down and demanding companies embrace accountability and transparency.”41  

Outside Pressure – Institutional Investors and Public Advocacy Efforts

Institutional investors and other advocacy groups have mounted pressure in recent years to accelerate the appointments of women to boards of directors.

Institutional Investors

Institutional investors have taken a more prominent role by using their financial influence to focus corporate efforts on increasing board diversity. Both public and private institutional actors have employed a number of tactics to urge publicly traded companies to take action. These include public statements of support for more diverse boards, support for shareholder resolutions encouraging companies to adopt formal diversity policies, threats to engage in or actual no-vote campaigns against directors on boards that have refused to respond to demands for increased diversity, and campaigns for proxy access to allow shareholders to directly nominate corporate directors.

In 2013, Eve Ellis of JP Morgan’s Matterhorn Group, started the Parity Portfolio which factors gender-diversity criteria in the investment process, requiring that its portfolio companies have a minimum of three women on the board of directors.42 

State Street Global Advisors created the Gender Diversity Index ETF, which tracks the performance of companies that have the largest levels of gender diversity in their boards of directors and senior management teams.43   Since its inception in 2016, the ETF (which is listed on the ticker symbol “SHE”) has increased by 24%.44

State pension funds, such as CalSTRS, are talking with their feet and using their positions to press this issue within the investor community and at the SEC. In March 2018, the New York State Common Retirement Fund, the third largest pension fund in United States,45 announced that it would vote against all the directors standing for re-election at the more than 400 companies in which they invest that have no women on their boards.46

Advocacy Groups

A number of other organizations are also involved in driving efforts to increase board diversity. These initiatives range from conducting research, to creating voluntary codes of conduct and best practices, to taking action by partnering with those involved in identifying board candidates or mentoring senior women executives. Catalyst, a global nonprofit that works with CEOs and leading companies to build workplaces that work for women,47 focuses on increasing boardroom diversity by producing research and conducting programs in which current CEOs and board chairs mentor and sponsor CEO-endorsed women board candidates. The 30% Club likewise has established a mentoring program and works with executive search firms to encourage them to put forward diverse slates of candidates.

The Thirty Percent Coalition has been active in calling for change, including launching a campaign in 2012 to send letters to companies urging them to increase representation of women on their boards, engaging with more than 230 companies overall.48 Since the campaign began, 189 companies have appointed a woman to their boards (as of July 2018).49

Conclusion

While there seems to be significant support for diversity initiatives in the United States, efforts have resulted only in regulatory and state-based initiatives and are generally voluntary for U.S. corporations (with the exception of California).  There has been increased support from public advocacy groups and state-elected officials for enhanced obligations in stock exchange listing requirements and to require U.S. companies to take tangible steps to address the issue. And there are indications that these efforts have had some positive effects, particularly with the recent uptick in board appointments for women in 2018 (women accounted for 31% of new board directors at 3,000 of the biggest publicly traded companies).  Moreover, ISS Analytics found that women in boardrooms have a greater set of skills and qualifications on their resumes than their male counterparts.50 These trends suggest that the modest growth in recent years may be accelerating.

*With special thanks to Stefanee Handon, Kristin Starr, Casey Miller, Kirstin Teager for their work on the Report Card on the United States (Fall 2016).

1 2020 Women on Boards Gender Diversity Index, Women on Boards 3 (2017), https://www.2020wob.com/sites/default/files/2020WOB_GDI_Report_2017_FINAL.pdf.

2 Vanessa Fuhrmans, Women on Track to Gain Record Number of Board Seats, Wall St. J. (June 21, 2018), https://www.wsj.com/articles/women-on-track-to-gain-record-number-of-board-seats-1529573401. 

3 Id.

4 See Delivering through Diversity, McKinsey & Co. (Jan. 2018), https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Organization/Our%20Insights/Delivering%20through%20diversity/Delivering-through-diversity_full-report.ashx.

5 Id.

Id.

7 Why It Pays to Invest in Gender Diversity, Morgan Stanley (May 11, 2016), http://www.morganstanley.com/ideas/gender-diversity-investment-framework; see also An Investor’s Guide to Gender Diversity, Morgan Stanley (Jan. 17, 2017), https://www.morganstanley.com/ideas/gender-diversity-investor-guide.

8 Why It Pays to Invest in Gender Diversity, supra note 8.

U.S. Gov’t Accountability Office, GAO-16-30, Corporate Boards: Strategies to Address Representation of Women Include Federal Disclosure Requirements 5 (Dec. 2015), https://www.gao.gov/assets/680/674008.pdf (hereinafter “GAO Report”).

10 Investors letter to companies–2017, Thirty Percent Coalition (Oct. 4, 2017), https://www.30percentcoalition.org/simplepagemenu/thirty-percent-coalition-investors-letter-to-companies-2017.

11 Fuhrmans, supra note 3. 

12 GAO Report, supra note 10,at 13.

13 Women in the Workplace, McKinsey & Co. & Lean In (2017), https://womenintheworkplace.com/Women_in_the_Workplace_2017.pdf.

14 Id. at 1.

15 Id.

16 Id. at 4.

17 Id. at 31.

18 See H.R. 1611, 115th Cong. (2017-2018). 

19 Id.

20 See H. Res. 445, 114th Cong. (2015-2016).

21 GAO Report, supra note 10,at 9.

22 17 C.F.R. § 229.407(c)(2)(vi) (2010).

23 Release No. 33-9089, notes 116-117, note 193.

24 Mary Jo White, 31st Chair of the SEC, Keynote Address at the International Corporate Governance Network Annual Conference: Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability (June 27, 2016), https://www.sec.gov/news/speech/chair-white-icgn-speech.html (“The SEC can't mandate board diversity, but it can make Boards provide more meaningful disclosure on it.”).

25 See Andrea Vittorio, Democrats Demand Improved Diversity Disclosures From SEC, Bloomberg News (May 26, 2017), https://www.bna.com/democrats-demand-improved-n73014451567/.

26 See Recommendation Regarding Disclosure of Board Diversity, SEC Advisory Comm. on Small & Emerging Cos. (Feb. 16, 2017).

27 See Breaking the Glass Ceiling: Women in the Boardroom, A Study of Major Global Exchanges, Paul Hastings 25 (Fall 2014).

28 Id. at 44.

29 Press Release, Nasdaq, Nasdaq Commits to Further Empower Women in the Workplace (March 8, 2018), https://business.nasdaq.com/mediacenter/pressreleases/1699686/nasdaq-commits-to-further-empower-women-in-the-workplace.

30 Kellie Ell, NYSE's first female president points to gender diversity problem (May 22, 2018), https://www.cnbc.com/2018/05/22/nyses-first-female-president-points-to-gender-diversity-problem.html.

31 S.B. 826, 2017-2018 Sess. (Cal. 2018), https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB826.

32 Matt Stevens, “California’s Publicly Held Corporations Will Have to Include Women on Their Boards, N.Y. Times” (Sept. 30, 2018). https://www.nytimes.com/2018/09/30/business/women-corporate-boards-california.html.

33 H.R. Res. 439, 99th Gen. Assemb., Reg. Sess. (Ill. 2015); H.R. Res. 273, Gen. Assemb., 2017 Sess. (Pa. 2017).

34 S. Res. 1007, 189th Gen. Ct. (Mass. 2015). 

35 H.R. J. Res. 17-1017, 70th Gen. Assemb., Reg. Sess. (Colo. 2017). 

36 H.R. Con. Res. 23, 132nd Gen. Assemb., Reg. Sess. (Ohio 2018); H.R. J. Res. 2, Reg. Sess. (Md. 2018); S. J. Res. 4, Reg. Sess. (Md. 2018).

37 Philadelphia Mun. Code § 17-104, as amended by B. 130457 (2013), https://phila.legistar.com/LegislationDetail.aspx?ID=1432999&GUID=0DB3C132-E00B-46D1-B7D5-6C96FEE35D3F; New York City Local Law No. 44 (2016), http://legistar.council.nyc.gov/LegislationDetail.aspx?ID=2240496&GUID=43C2F69D-B671-4363-917F-3F8265961E93.

38 Comptroller Stringer, NYC Pension Funds Launch National Boardroom Accountability Project Campaign — Version 2.0, City of New York Boardroom Accountability Project, https://comptroller.nyc.gov/services/financial-matters/boardroom-accountability-project/boardroom-accountability-project-2-0/ (last visited Sept. 13, 2018).

39 Id.

40 Press Release, Comptroller Stringer, NYC Funds: Unprecedented Disclosure of Corporate Boardroom Diversity Following Groundbreaking Campaign, (June 27, 2018), https://comptroller.nyc.gov/newsroom/comptroller-stringer-nyc-funds-unprecedented-disclosure-of-corporate-boardroom-diversity-following-groundbreaking-campaign/.

41 Press Release, New York City Comptroller Scott M. Stringer, Comptroller Stringer, NYC Pension Funds Launch National Boardroom Accountability Project Campaign — Version 2.0 (Sept. 8, 2017), https://comptroller.nyc.gov/newsroom/press-releases/comptroller-stringer-nyc-pension-funds-launch-national-boardroom-accountability-project-campaign-version-2-0/.

42 The Parity Portfolio Strategy, Matterhorn Grp. atMorgan Stanley, https://fa.morganstanley.com/matterhorn/mediahandler/media/147218/Parity%20Fact%20Sheet%20022015.pdf; see also Gender Lens Investing: Q&A with Eve Ellis, Financial Advisor and Portfolio Manager in The Matterhorn Group at Morgan Stanley, US | SIF (Nov 3, 2016), https://www.ussif.org/article_content.asp?edition=1&section=5&article=7.

43 Press Release, State Street Corp., State Street Global Advisors Launches Gender Diversity ETF to Help Investors Seek a Return on Gender Diversity (Mar. 7, 2016), https://newsroom.statestreet.com/press-release/corporate/state-street-global-advisors-launches-gender-diversity-etf-help-investors-se.

44 See SHE:US, Bloomberg, https://www.bloomberg.com/quote/SHE:US (last visited Aug. 16, 2018).

45 Corporate Board Diversity: Gaining Traction Through Investor Stewardship, Bus. Law Today (Jul. 16, 2018), https://businesslawtoday.org/2018/07/corporate-board-diversity-gaining-traction-investor-stewardship/.

46Press Release, Office of the N.Y. State Comptroller, DiNapoli: State Pension Fund Will Vote Against Board Members at Corporations with no Women Directors (Mar. 21, 2018), https://www.osc.state.ny.us/press/releases/mar18/032118.htm.

47 Catalyst, https://www.catalyst.org/mission (last visited Sept. 14, 2018).

48 Press Release, Thirty Percent Coalition, 189 Companies Appointed Woman to Boards since Campaign Launched in 2012 (Jul. 17, 2018), https://www.30percentcoalition.org/news/coalition-news/the-thirty-percent-coalition-commends-38-new-companies-adding-women-to-their-boards-of-directors-during-the-2018-adopt-a-company-campaign.

49 Id.

50 Fuhrmans, supra note 3.