Deloitte has partnered with a group of other organizations on an initiative to bring greater diversity to boards of directors at public companies.
As part of a group known as the Alliance for Board Diversity, Deloitte released a study last week on the diversity of boardrooms among Fortune 100 and 500 companies, in collaboration with the Executive Leadership Council, Catalyst, the Hispanic Association on Corporate Responsibility (HACR), and Leadership Education for Asian Pacifics (LEAP). They found that while there have been some diversity gains in the corporate boardroom, they have been negligible at best, and not representative of the broad demographic changes underway in the U.S.
Currently, 65 percent of Fortune 100 boards have greater than 30 percent board diversity, compared to the Fortune 500, where that proportion has declined to under 50 percent of companies.
“From a good news standpoint, women in both the Fortune 100 and Fortune 500 comprise an all-time high,” said Deloitte chief inclusion officer Deborah DeHaas, who runs the firm’s Center for Board Effectiveness. “It’s 30.8 percent amongst Fortune 500 companies, up from 26.7 percent in 2012. And in the Fortune 100, over 35 percent are women and minorities, and that also represents an increase. I would say that the trajectory overall is headed in a positive direction, but I think it’s fair to say that the pace of change is relatively slow.”
Some progress has been made for African Americans in securing and holding board seats at Fortune 500 companies, but most of the increases for African American males have happened within the Fortune 100. There has been an 18.4 percent increase of African American women board members in Fortune 500 companies since 2012, but the total number of African American male board members in the Fortune 500 only increased 1 percent.
“I think what you see is there’s been a faster shift in gender representation, and there has actually been in some cases relatively small or almost no change in [some groups] within the overall minority representation,” said DeHaas.
The percentage of Caucasian women currently holding Fortune 500 board seats has increased by 21.2 percent since 2012, while the number of Caucasian men has declined 6.4 percent.
“One of the goals that ABD had when they initiated this tracking was they had hoped that by 2020 there would be 40 percent representation of women and minorities,” said DeHaas. “If you look at the path of change right now, it looks like it would be at least 2026 before we get to that point. There has been very little change amongst minorities, and if anything the growth in representation among minorities has primarily been in minority women and not minority men.”
Indeed some minority women have made gains in the boardroom, although the percentages are still relatively low.
“If you look at the split today, in the Fortune 100, 39.1 percent are women and minorities,” said DeHaas. “If you look at that from a gender viewpoint, the gender piece of that is 23 percent are women in the Fortune 100, and minorities are about 17.5 percent. The women have progressed somewhat faster, and more of the increase, at least in recent years, has come from minority women.”
Accounting firms have also fallen short on putting more women and minorities in leadership roles, despite diversity initiatives by the American Institute of CPAs and other groups. Two of the Big Four firms are led by women in the U.S., though, with Deloitte CEO Cathy Engelbert and KPMG CEO Lynn Doughtie. DeHaas has seen progress over the years on Deloitte’s own board, where she has served as vice chairman.
“If you just look at our own board, which I was a member of for two terms and came off our board about two years ago, we’ve had a very diverse board,” she said. “We have a larger board than many of the public firms would have. The average size of a public company board, from our research, is somewhere between nine to 11 people, and our Deloitte board has 21 members. But close to 60 percent of our board is women and minorities, and we’ve been over 50 percent for a while. So we’ve actually been able to be a little bit ahead of some of these firms in terms of our own diversity from a governance perspective. I think what hopefully will continue to happen is that reports like this will allow for conversation with organizations and allow for some dialogue around the benefits of having more diversity on the board.”
She pointed to studies demonstrating that organizations whose boards have higher participation of women have enjoyed better returns on investment than those with less diversity.
“What I’m seeing just amongst my clients is that there is a widening of the aperture for the types of board members that are being considered,” said DeHaas. “For many years the talent in the boardroom was primarily made up of current and former CEOs. As CEOs have been more limited in outside board work they can do while they’re a sitting executive, I think that has widened the need to look for people from other C suite roles.”
She noted that boards need to have skills such as experts in technology and cyber risk. “I think the position that our report would put forward is that there’s a lot of value from adding diversity to the board, given consumer trends and other demographic shifts that are happening,” said DeHaas. “It just seems to make a lot of sense that the representation of leadership in the boardroom should be moving in a consistent manner with those other shifts.”
The report found that Asian Pacific Islanders have shown continued growth in their presence on corporate boards, although they started from a small baseline in the original report. Their overall representation is now approximately 3 percent of all board seats, for a total of 167 seats, with an additional increase (46.7 percent) in Asian Pacific Islander women. African Americans appear to have the highest rate of individuals serving on multiple boards, as many companies have turned to the same individuals rather than expand the pool of African American candidates for board membership. Nominal gains have been made for Hispanic and Latino men, although there was a loss of two Fortune 500 board seats for Hispanic and Latino women since 2012.
For accountants, the audit committee chair is a key position on the corporate board, and the report found growing diversity in that role.
“You are seeing increasing levels of diversity of the audit committee chair, almost 15 percent white women, 8.2 percent minority men and 3.2 percent minority women, so I think that’s really positive,” said DeHaas. “What you do see overall is that the Fortune 100 is in fact moving a little bit faster than the Fortune 500 companies, and hopefully a little bit of that leadership will incent some of the companies that are a little bit smaller to potentially pick up their pace of change as well.”
Deloitte plans to continue to study the issue in partnership with the other organizations in the Alliance for Board Diversity.
“The intent is to continue to track information like this and to continue to work together on diversity issues and considerations, with the objective that hopefully by publishing fact-based information and creating an opportunity for dialogue, it will create more of an opportunity to see progress in that regard,” said DeHaas.