April 10, 2019

Third-Party Recruiters: Pivotal to Director Diversity Change?

We’ve blogged about how some companies have adopted a “Rooney Rule” in an effort to improve board diversity. Now, it might be easier to include diverse candidates for vacancies – because Heidrick & Struggles has announced that each year, half of their cumulative slate of board candidates presented to clients will be diverse.

Heidrick has reason to be confident they’ll meet that goal. In 2018, 52% of their North American board placements were diverse candidates. Hopefully, starting with change at the beginning of the recruitment process will result in real change – but the proof is in the pudding…

This WaPo article reports on Goldman Sachs’ efforts to improve gender diversity for both entry level & senior employee positions, which came about because the bank wants to improve its gender pay ratio (which is required to be reported in Britain).

Board Diversity: Illinois Considering Quotas

Recently, the Illinois House of Representatives passed “House Bill 3394” – which would amend the state’s Business Corporation Act to require public companies headquartered in the “Land of Lincoln” to have at least one female director and one African-American director on their boards by the end of next year. Companies that don’t comply would face fines of $100,000 (first-time offenders) or $300,000 (repeat offenders).

After a heated debate, the bill advanced to the Illinois Senate by a vote of 61-27. If it becomes law, companies can increase the size of their boards to comply. Illinois is home to some pretty well-known companies – e.g. Walgreens, Boeing, McDonald’s, Archer Daniels Midland – but I’m guessing that smaller companies will be more affected. UCLA’s Stephen Bainbridge is among those criticizing the bill. But there’s a reputational risk for companies that challenge the low bar that the legislation would establish.

Board Diversity Mandates: What’s the Impact?

It was pretty big news when California passed its board gender diversity law last year. And Illinois isn’t the only state that’s considering similar legislation. Earlier this year, Broc blogged about a bill in New Jersey, and this Bloomberg article reports on proposed legislation in Massachusetts and non-binding guidelines in other states. But if these types of statutes catch on in the US, how much will they move the needle? This Cooley blog analyzes Bloomberg’s findings – here’s an excerpt:

The Bloomberg analysis showed that the new law could mean that 692 more board seats open up for women. In addition, reports Bloomberg, if every state were to adopt a comparable law, “U.S. companies in the Russell 3000 would need to open up 3,732 board seats for women within a few years.” Meaning the number of women on boards nationwide would rise by almost 75 percent.

Currently, among the Russell 3000, men hold 21,424 board seats, while women hold 5,088 seats. And 99 percent of boards are majority male. Board seats are often filled by current or retired executives, who are most often men. In addition, when director slots open, they are often filled through personal connections, likewise most often male. Those are just two of the reasons why women make up only one-fifth of U.S. board directors.

As Bloomberg reports, without some kind of change, “it could take another two generations before the boardroom matches the workforce, which is about half female. The glacial rate of progress inspired the California law, which had wide support in the state legislature.” And, as discussed in this article in the WSJ, companies will need to “revamp the way they recruit female directors.” According to the chair of the NACD, the “‘system produces white male candidates unless board leaders deliberately do something different.’”

Liz Dunshee