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US makes great progress on boardroom diversity

US makes great progress on boardroom diversity

02-03-2018 | Column

Maybe it is because I am a woman in an industry dominated by men, and because I chose to focus on sustainability at an early stage, that I have always been interested in the topic of diversity. Not only from the gender perspective, but also because of the validated belief that different backgrounds and opinions make for better-informed decisions.

  • Masja Zandbergen
    Masja
    Zandbergen
    Head of ESG integration
  • Laura Bosch Ferreté.
    Laura
    Bosch Ferreté.
    Engagement analyst

While the Netherlands is making hardly any progress on this topic, the US is making great strides. I was positively surprised to read that a Spencer Stuart survey found that in 2017, half of the incoming directors on S&P 500 boards were women or from minorities. Female representation among new directors rose from 26% in 2012 to 36% in 2017, while 20% of new independent directors were male and female minorities.

The board gender diversity discussion was strengthened last year when several of the world’s largest institutional investors took a stand on this matter. The actions undertaken ranged from the installation of State Street Global Advisors’ Fearless Girl statue on Wall street, to BlackRock’s support for eight shareholder proposals on board diversity in North America.

Gender diversity on boards has improved prominently in recent years across several market capitalizations and markets. Government intervention in this area has increased, as several countries (e.g. India, France) adopted legislative measures to promote gender diversity at board level through mandatory gender quotas. However, the debate around the topic moved from a discussion around equality and fairness, to a matter of superior corporate performance, evidenced by a wide range of literature.

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Promoting success

So what do these people do? Corporate boardrooms provide management and risk oversight while supervising the company’s strategy on behalf of the shareholders. Diversity becomes a crucial factor to promote success at the boardroom when understood from a broader perspective, moving beyond solely gender equality and including diverse representation of tenures, ages, nationalities and professional backgrounds.

It’s simple – diversity at the boardroom reflects the real world in which the company operates. An appropriate variety of director profiles allows for a better understanding of the company’s customer base, ensuring better adaptability to shifting consumer and market trends at an ever increasing pace. A wide range of perspectives in the boardroom is critical to effective corporate governance and potential disruptive discussions.

Well-diversified boards add value to a company since people from different backgrounds are more likely to approach issues from differing perspectives, leading to more effective decision-making and efficient supervision. Therefore, institutional investors have been praising board diversity as a key to sound corporate governance practices.

Using Active Ownership

As part of Robeco’s Active Ownership approach, we have been addressing diversity in the boardrooms of our investee companies through our engagement and voting activities. In several markets, it is common to find director nominations to serve on the board included on the shareholder meeting’s agenda. A thorough assessment of the overall board diversity in terms of tenure, skills, gender and external commitments is conducted and compared to local best practices. Our voting guidelines have been recently updated to reflect this assessment criteria.

During our engagement with companies in the financial sector around the quality of their boards, a special focus was adopted to see how diversity affects their nomination policy, and which factors the company tries to diversify. Another example of our work in this field is a recent collaborative engagement conducted with RobecoSAM, through which we have been engaging on a wide range of gender equality and diversity measures of our investee companies.

In recent years, much of the focus on board diversity has focused solely on gender. However, if the argument for increased diversity is that it adds value to the board, then boards must strive to achieve diversity in the broadest sense in order to enhance business performance.

Assisted this month by engagement analyst Laura Bosch Ferreté.

This is our monthly column on sustainability investing by Head of ESG integration Masja Zandbergen.

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