Tuesday, January 05, 2016

Could Disclosure Be the Answer to Getting More Women on Boards?

By Anne Sherry, J.D.

A GAO report on women’s representation on corporate boards offers grim statistics but few solutions. While gender diversity is increasing, it could take 40 years to achieve gender parity. Most stakeholders that the office interviewed support strengthening federal disclosure on board diversity, and GAO noted that a contingent of public funds has petitioned the SEC to require specific disclosure on directors’ gender, race, and ethnicity.

Representative Carolyn Maloney (D-NY), Ranking Member of the Subcommittee on Capital Markets, asked GAO to examine gender diversity on corporate boards. The office looked at ISS data going back to 1997 on directors at each company in the S&P 1500. GAO also interviewed 19 individuals with experience as officers, directors, or investors, as well as several other individuals with experience serving on mostly or exclusively male boards. The report examines SEC disclosure requirements and incorporates SEC comments; the EEOC had no comments.

The report finds that women are increasingly represented among new directors, driving an overall improvement in diversity. However, men are so entrenched on boards, and turnover is so low, that parity would not occur until 2024 even if every future vacancy were filled by a woman. Women occupy 19 percent of board seats in the S&P 500 and only 12 percent of those in the S&P SmallCap 600; one-third of small companies have all-male boards.

Factors and solutions. Interviewees said that boards’ failure to prioritize diversity when recruiting is one reason for women’s low representation. Another is that boards look for CEO or board experience when recruiting; this traditional pipeline already has a low female population. Finally, boards turn over only about 4 percent of their seats each year. To counteract these factors, stakeholders suggested requiring a diverse slate of board candidates; setting voluntary diversity targets; expanding board searches beyond the traditional pipeline; and increasing new director appointments by expanding board size, adopting term or age limits, and conducting director evaluations.

While 16 of 19 interviewees oppose government quotas, 15 of the stakeholders supported improving federal disclosure requirements. The SEC allows companies to define diversity however they consider appropriate, but a group of nine public fund fiduciaries has petitioned the agency to require specific disclosure of board nominees’ gender, race, and ethnicity. The SEC said that it will consider the petition as part of its ongoing Disclosure Effectiveness Initiative.