America’s corporate boards are becoming more diverse, but the pace of change remains uneven across different demographic groups.
Women and members of racial minority groups held nearly 45% of board seats at Fortune 500 companies in 2022, according to a report released Thursday by the consulting firm Deloitte and the Alliance for Board Diversity. That is a significant uptick from 38% in 2020.
The national focus on social and racial justice in 2020 likely played an important role in this growth, said Michael Hyter, president and CEO of the Executive Leadership Council, a nonprofit committed to increasing the number of Black executives in global enterprises.
In 2022, women held more than 30% of Fortune 500 board seats, up from 26.5% in 2020, according to the report. Racial and ethnic monitories continued to make strides in the boardroom as well. The share of Fortune 500 board seats held by African-Americans, Asian and Pacific Islanders, and people from Hispanic or Latino backgrounds has increased from 17.5% in 2020 to 22.2% in 2022.
Still, the authors of the report noted that no Fortune 500 company board fully reflects the demographic mix of the U.S. population. About 281 firms in the group have more than 40% female members on their board, but the level is above 50% at only 16.
While more than 200 companies now have more Black and Asian and Pacific Islander directors than those groups’ share of the U.S. population, Hispanic people, who make up 18%, remain underrepresented. Only 13 of the Fortune 500 firms have 18% or more of their board members from the group.
“By 2060, the Hispanic population will be almost 30% of the nation’s population, yet fewer than 5% of corporate board positions are held by Hispanics, which makes us the community with the largest disparity of board representation compared to our population and economic influence,” said Cid Wilson, president and CEO of the Hispanic Association on Corporate Responsibility.
The levels of diverse representation are slightly higher in the Fortune 100 companies than in the broader Fortune 500, according to the report. Consumer-facing businesses lead in terms of gender representation, while boards at life sciences and healthcare firms are most racially diverse.
The data also revealed some divisions among industries when it comes to racial representation. The power and utilities sector has the highest percentage of Black directors, tech firms have the highest rate of Asian and Pacific Islander directors, and the energy and chemicals industry has the largest share of Hispanic board members.
Female and minority directors account for less than 10% of board seats at only four Fortune 500 companies.
While the progress on diversity is welcome, companies need to create a welcoming environment so that the new voices can be heard, allowing enterprises to benefit from different views, said Kwasi Mitchell, Deloitte’s chief purpose and diversity, equity, and inclusion officer.
The connection between board diversity and company performance remains a hotly debated topic among corporate governance experts.
While many academic papers have shown that board members with diverse backgrounds can offer insights that boost company performance, others suggest that the varying cultural perspectives could lead to communication difficulties and conflicts in making decisions. That could be harmful when an immediate response is required, the research says.
Some research also suggests that women and people from ethnic minorities are more likely to be chosen to lead a company when it is already in or on the edge of a crisis. This so-called glass cliff phenomenon means these leaders face a higher risk of failure.
Write to Evie Liu at evie.liu@barrons.com
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