Diversity of S&P 500 Boards Continues to Improve

S&P 500 boards appointed 413 new independent directors in the 2020 proxy year, according to a new study by Spencer Stuart. Of that figure, 59% of new appointees were women and minority men, tying the 2019 record for the year with the most diverse new independent directors.

The “2020 U.S. Spencer Stuart Board Index” found that companies are listening to calls from shareholders and other stakeholders for increased diversity in their boardrooms, including in the areas of gender, age, race, ethnicity and professional background.

Recently, Nasdaq issued a proposal to the Securities and Exchange Commission (SEC) to require companies listed on the exchange to disclose the diversity on their boards.

Spencer Stuart says that while a majority of new directors are women and minority men, changes to overall board composition are happening slowly, partly due to persistently low boardroom turnover. New directors represent only 8% of all S&P 500 directors, consistent with prior years.

“Board composition is being scrutinized as never before, as investors and other stakeholders press boards to ensure director qualifications align with company strategy and increase the diversity of perspectives around the board table,” says Julie Hembrock Daum, who leads Spencer Stuart’s North American Board Practice. “Boards that embrace regular change are in the best position to have the skills and expertise for the company’s forward-looking challenges, opportunities and strategies.”

This year’s index also found that all boards have at least one woman for the first time since Spencer Stuart began tracking this data in 1998.

In this year’s incoming class of S&P 500 directors, 47% are women, the highest percentage in Spencer Stuart’s 22 years of tracking this data.

Overall, women made up 28% of all S&P 500 directors in 2020, up from 26% last year.

However, representation of minority directors did not change significantly this year. Twenty-two percent of new S&P 500 directors are minorities—defined as African American/Black, Hispanic/Latino or Asian—down from 23% last year.

Minority women represent 10% of the incoming class, consistent with last year, and minority men represent 12% of the new directors, a slight decrease from 13% last year.

Of the top S&P 200 companies, minorities represent 20% of all directors, up from 19% last year.

Despite the small downward tick in minority representation, 24% of S&P 500 companies report being committed to recruiting from a diverse slate of candidates for new directors.

The lion’s share, 64%, of new board members are outside the ranks of chief executive officer, chairman, vice chairman, president and chief operating officer (COO). The most common titles are chief financial officer (CFO) or other financial executives (27%) or divisional or subsidiary heads or top executives of functional units (23%).

Women and minority men tend to have different backgrounds than the traditional director. Only 17% of this group are current or former CEOs, compared with 46% of other directors. Just 5% of the non-minority men in the incoming class are current or former line or functional leaders, compared with 23% of the women and minority directors.

Just under one-third (32%) of new women or minority men directors are first-timers, versus 18% of non-minority directors.

Spencer Stuart says one reason retention remains high is that board compensation is on the rise. The average total pay for non-employee directors of S&P 500 companies, excluding independent chairs, is about $308,000. The four sectors with the highest average director compensation are health care, technology, communications services and energy.

Seventy percent of S&P 500 companies have mandatory retirement policies for their directors. However, only 16% of the independent directors on boards with age caps are within three years of mandatory retirement.

Independent directors average 63 years of age, which means that many of them can remain on the boards they serve for years to come, Spencer Stuart says.

“Looking ahead to next year, it will be difficult for boards to make meaningful progress in improving diversity unless they embrace more frequent turnover,” Daum says. “It should be noted that year over year, we find that companies with new independent directors and more significant diversity in the boardroom benefit from a business performance standpoint as well.”