Sector News

To diversify, some boards of directors are growing in size

April 2, 2019
Diversity & Inclusion

PwC tracks what it classifies as “younger board directors”—those age 50 and under—and a new report on the cohort came out yesterday [March 27]. An unmistakable takeaway is that women are making up a larger share of this constituency—37% in 2018 versus 31% the year prior. Of those independent “younger directors” who joined boards for the first time in 2018, more than half—61%—were female. Those figures reflect the uptick in female directors in the S&P 500 overall—24%—an increase from 18% five years earlier.

Another notable trend: As firms look to diversify their boardrooms in terms of gender, race, and age, they seem to be changing their criteria for candidates. They’re becoming less insistent on board hopefuls having CEO experience, a qualification that applies to a (let’s be honest, mostly white, mostly male) sliver of the business professional population. The PwC report found that 24% of new independent younger directors are current or former CEOs, compared to 37% of the existing class.

That finding may point to the time crunch CEOs are under, says Paul DeNicola, a principal in PwC’s Governance Insights Center. “CEOs can really no longer commit to more than one board” because of the hours each seat requires. But it also indicates, to some degree, that “boards are not using CEO experience for a yardstick of whether [someone’s] qualified,” DeNicola says. “That expands the pool of candidates.”

Another way boards seem to be adding diversity to their ranks is by expanding in size, rather than waiting for seats to become vacant, which can happen at a downright leisurely pace. “In the S&P 500 overall, more than half of the new women joining boards in 2018 came on when the board increased its size,” the report says. (At the same time, five-year data from global search firm Spencer Stuart finds that across the entire S&P 500 average board size has remained relatively steady at 10.8 directors.)

When TripAdvisor added two female directors—Betsy L. Morgan and Trynka Shineman Blake—earlier this month, it contributed to this trend, boosting its board from eight directors to ten.

“We don’t want to be contained if we see great candidates who bring an element of diversity,” TripAdvisor’s Chief People Officer Beth Grous told me. Having a board that’s varied in terms of gender, background, and ethnicity “helps us have the right kinds of conversations from a more informed position,” she said. (TripAdvisor’s board announcement, it should be noted, came amid criticism of its response to travelers’ sexual assault claims.)

As boards grow to meet investors’ demand for diversity, there is one question that pops to mind: Just how big will they get? “If a board is going to increase its size to add diversity, it’s not going to double,” DeNicola says. Plus, he says, “the benefits of having more diversity” far outweigh “any potential drawbacks of inefficiencies.”

By Claire Zillman

Source: Fortune

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