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Fenwick & West recently published this report on board gender diversity among large public companies & the Silicon Valley 150.  Here are some of the key findings:

– The representation of women on boards continued to increase between 2018 (the last year Fenwick published the gender diversity survey) and 2020 in the United States and at rates higher than in years past. The average percentage of women directors increased 8 percentage points in the SV 150 to 25.7% in 2020 and in the S&P 100 rose 4 percentage points to 28.7% (with the SV Top 15 increasing 4.5 percentage points to 30.3%).

– In the last few years in both the S&P 100 and the SV Top 15, 100% of companies have had at least one woman director. In the SV 150 overall, the percentage of companies with at least one woman director increased 16.4 percentage points to 98%.

– In the S&P 100, gender diversity has grown slowly but steadily at a cumulative rate of 61%, or a compound annual growth rate (CAGR) of 2.37%. The SV 150 has lower scores overall, but a greater cumulative growth rate of 216%, and more than double the CAGR, 5.42% (with more rapid growth over the past decade).

The report says that most SV 150 companies met the initial 2019 standard for board gender diversity mandated under California’s SB 826, but that 57% of those companies will need to add women to meet the law’s 2021 standard. Only 14% of S&P 100 companies would need to add women to their boards in order to satisfy the 2021 standard.

Board Diversity: Does Diversity Enhance Shareholder Value?

Most of the studies on board diversity that I’ve seen referenced have concluded that increasing the diversity of corporate boards enhances shareholder value. That conclusion is a cornerstone of Nasdaq’s justification for its board diversity listing proposal, which cites a number of these studies.  But UCLA’s Stephen Bainbridge points to a recent paper by Harvard Law School Prof. Jesse Fried, which claims that the studies Nasdaq cites provide little support for that conclusion.  Here’s the abstract:

In December 2020, Nasdaq asked the Securities and Exchange Commission to approve new diversity rules. The aim is for most Nasdaq-listed firms to have at least one director self-identifying as female and another self-identifying as an underrepresented minority or LGBTQ+. While Nasdaq claims these rules will benefit investors, the empirical evidence provides little support for the claim that gender or ethnic diversity in the boardroom increases shareholder value. In fact, rigorous scholarship—much of it by leading female economists—suggests that increasing board diversity can actually lead to lower share prices.

There are all sorts of good reasons to promote increased gender & ethnic diversity on public company boards, including (as the paper points out), data indicating that it results in improved oversight of executives & financial reporting. But if this study is correct, it appears that there isn’t much in the way of quality empirical research to support Nasdaq’s claims about the positive impact of board diversity on shareholder value.

Tomorrow’s Webcast: “ESG Considerations in M&A”

Tune in tomorrow for the DealLawyers.com webcast – “ESG Considerations in M&A” – to hear the Hunton Andrews Kurth’s Richard Massony, Seyfarth’s Andrew Sherman and K&L Gates’ Bella Zaslavsky discuss the ESG considerations that are increasingly “front and center” for both buyers and sellers in M&A transactions.

– John Jenkins