TheCorporateCounsel.net

With so much attention on board diversity these days, an inevitable question is whether the increased diversity of corporate boards influences broader diversity gains in companies. It certainly stands to reason that a more diverse board of directors will take actions and influence policies that could promote the DEI efforts of the companies they serve.

A recent National Law Review article highlights an academic study titled “Do Diverse Directors Influence DEI Outcomes?” which examined the influence of more diverse boards on company DEI efforts. The study sought to examine “whether greater board diversity is associated with more diverse workforce hiring, more equitable pay practices, and more inclusive corporate cultures, as evidenced through employees’ perceptions of cultural norms.” The study reviewed a sample of S&P 1500 firms over the period from 2008 through 2020.

The article notes that some of the study’s findings include the following:

– Broad-based board diversity” (a measure that includes gender, ethnicity, age, education, expertise, and board experience) “is statistically associated with increased diversity at all depths.”

– Companies “with an increase in female representation on the board increase the female representation at the company.” The study conservatively estimated that an increase of two percentage points in female board representation is associated with an increase of 5.2% in female employment and an increase of 3.0% in female staff.

– Companies with an increase in female representation on the board also show an increase in non-white representation at the company. An increase of two percentage points in female board representation is associated with an increase of 5.0% in non-white employment, “primarily driven by hiring of non-white staff.”

– The study showed “a meaningful relationship” between non-white directors and non-white employees, but “no relation between non-white directors and female employees within the firm once control variables have been included.” “Thus, the evidence on allyship suggests women are stronger allies for non-white employees than non-white employees are for women.”

– The study found “some evidence . . . that having more non-white directors is associated with lower salary gaps for non-white employees,” but “mostly [saw] little evidence that board diversity alters salary gaps.”

– “Greater broad-based board diversity is significantly associated with a higher number of stars for Glassdoor’s five-star rating system for company culture” and with other metrics evaluating employees’ perceptions of their workplace and management.

– The study found disagreement among rating agencies as to ESG ratings and the S component of ESG. “This suggests that asset managers looking to incorporate gender and racial equity into their investment decision-making process need to look beyond check-the-box approaches to ESG ratings.”

This will no doubt be an area of continued academic study as boards become more diverse and more attention is focused on company DEI efforts.

– Dave Lynn