News Analysis

Diversity on boards remains in doubt

by Dan Byrne on Mar 2, 2023

Diversity on boards remains in doubt across the world when it comes to race/ethnicity. Often, reports on the subject never come; when they do, they show stagnant numbers.

Racial/ethnic diversity on boards simply isn’t feeling the boost experienced elsewhere, particularly in the gender-balance arena, which continues to see substantial progress towards mid-decade targets in multiple jurisdictions. 

Compared to that, race/ethnicity figures are lagging. They don’t move forward at the same pace, and we’ve only just entered an area where enough companies report on it at all. 

It begs the question of how long we’ll be in this scenario and how boards will handle the challenge of diversifying their makeup.

Diversity on boards: what’s going on?

Gaps remain in the global goal of achieving greater ethnic diversity on boards in the next few years. 

At the end of the latest MSCI Women on Boards report, the finance company has a small section on racial/ethnic diversity, and its conclusion is simple: there is still a “long way to go.”

What are the details?

“A lack of disclosure regarding the ethnic and racial composition of boards remains prevalent in most markets,” the report said. 

Analysing the 591 US-domiciled constituent companies on the company’s MSCI World Index: it was found that nearly half still didn’t report on racial diversity at all. 

Of the 300 companies who did report, 219 said the number of directors from minority racial backgrounds on their boards was less than 30%. 

For context, gender balance targets currently aim for 30-40% of women on boards by the middle of the decade. In many sectors and countries, this target has already been reached.

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What does this tell us about diversity on boards?

It tells us that while the sentiment may exist for more ethnically diverse boards, results are visibly scant right now, especially when compared to the drive for more balanced gender diversity. 

We’re not even at the stage where companies will report on racial/ethnic board diversity universally. Instead, we’re still waiting for some to begin providing relevant figures. Without these benchmarks, lawmakers and investors stay in the dark, and most will see this as a negative.

Is it just the MSCI World Index that’s seeing these trends?

The MSCI’s conclusions zero in on the lack of companies reporting at all, and this is not always the case. 

For example, as of November 2022, 90% of S&P 500 boards were disclosing racial representation. But it’s still a question of one hurdle after another; even though S&P Boards are reporting, the numbers – according to Fortune – have “barely budged.”

Is race/ethnicity diversity on boards important?

Yes. Modern lawmakers, investors and consumers are increasingly passionate about board diversity overall

They see its potential in providing proper stakeholder representation and emphasise how broad the term is. Gender is an obvious inclusion, as is ethnicity, but it also includes nationality, LGBTQ+ representation, age, and skillset. 

Diversification is a big word at the board level.

So is gender balance seen as more important?

It’s seeing more tangible results, especially in the UK and EU, but these results are partly motivated by quantified targets set through campaigning (in the case of the UK) or new laws (in the case of the EU). 

We are now seeing the beginnings of these targets for race and ethnicity too. The Financial Conduct Authority in the UK and Nasdaq in the US have set new rules to encourage greater board diversity. It starts, they say, with wide-reaching succession planning so that companies can quickly assemble a wide candidate pool when a vacancy arises. 

How much these rules make a difference is what we should watch out for next.

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Boardroom diversity

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