S&P 500 companies are slowly making progress on board diversity. In 2020, S&P 500 boards appointed 413 new independent directors, with 59% of these appointments going to women and minority men, according to a new report released by Spencer Stuart, an executive search and leadership advisory firm.
With these new appointments, every S&P 500 board now has at least one woman, marking the first time this has happened since Spencer Stuart started tracking this data in 1998.
"We've been talking about this for a very long time," Julie Hembrock Daum, who leads Spencer Stuart's North American Board Practice, tells CNBC Make It in regards to the need for greater board diversity. "I think the real impact has come from the institutional investor community who finally started saying, 'You know, we've been talking about this for a long time and we haven't really seen that much traction. We're going to focus on it and we're going to hold boards accountable.'"
Of the new S&P 500 directors that were appointed to boards this year, 47% were women, also the highest number that Spencer Stuart has seen since tracking this data. Overall, representation of women on S&P 500 boards increased from 26% last year to 28% this year.
When it comes to directors who identify as Black/African American, Hispanic/Latinx or Asian, Spencer Stuart saw a slight decrease from last year. In 2020, 22% of new S&P directors are from minority groups, down from 23% last year. Minority women make up 10% of this year's incoming class of new directors, a number that has not changed since last year. Meanwhile, minority men make up 12% of new directors, a decrease from 13% last year.
When looking at the lack of progress around racial diversity, Daum says she's hopeful that more companies will place a strategic focus on increasing these numbers as she's already seen a shift in diversity conversations following George Floyd's death.
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"I know it will change," she says, while adding that this moment is different from past moments where diversity would be a hot topic for a short time period before dying out again. "It will be different for the exact same reason it was different for women. And that is that the institutional investor community is saying, 'This is important. We're going to talk about it and we're going to measure it.' And that will make the difference."
So far, she says, one quarter of S&P 500 companies reported to Spencer Stuart that they have a commitment to recruiting from a diverse slate of candidates when looking for new directors.
Following the viral #MeToo hashtag in 2017, which sparked a movement and public discourse about sexual harassment in the workplace, several business leaders, and even lawmakers, made commitments around greater gender diversity. In 2018, California became the first U.S. state to require publicly held companies headquartered in the state have at least one woman on their board. Earlier this year, Goldman Sachs CEO David Solomon announced that starting July 1, the firm would not take a company in the U.S. or Europe public "unless there's at least one diverse board candidate, with a focus on women."
This month, Nasdaq proposed a similar diversity mandate saying that, if approved by the U.S. Securities and Exchange Commission (SEC), it will require listed companies to have, or explain why they don't have, at least two diverse board members, including one person who self-identifies as female and one person who self-identifies as an underrepresented minority or LGBTQ+.
Already, several studies have pointed to the benefits of having diverse firms. A 2020 McKinsey report found that companies with executive teams in the top quartile of gender diversity are 25% more likely to have above-average profitability than companies in the bottom quartile of gender diversity. Another study released by Boston Consulting Group in 2018 found that companies with more diversity at the management level generate 19% higher innovation revenues than companies with less diversity, and a 2020 report from Harvard Law School Forum on Corporate Governance says that diversity on corporate boards "can meaningfully improve the quality of decision-making."
When looking at the numbers, Daum says she's hopeful that this upcoming year "will be a year of great change" as the "institutional community will keep a spotlight on the topic" of both racial and gender diversity.