Corporate Governance

Board Diversity and Governance Reform

By J. Robert Brown

As we debate increased regulation, we return to one of the most common shibboleths raised by opponents.  Additional regulation will cause the pool of eligible directors to shrink.  Certainly, the stories of departing directors have increased, with companies like General Motors and AIG cleaning house.

So is the pool really shrinking?  As we noted, resignations would in fact provide a perfect opportunity to expand the pool and frankly bring to the boardroom some much needed diversity.  The number of women and people of color in the boardroom is anemic.  Diversity is about providing the CEO with a full range of advice and feedback to make him/her more effective.  Loading up boards with people who resemble the CEO may well be the worst thing for someone managing huge businesses.

Evidence suggests that the pool is not shrinking but that companies are forced to reach outside their traditional sources.  According to reports in the WSJ on a study done by Directors & Boards, the number of women among new directors has increased substantially.

• In the first three months of the year, 38% of new directors – 38 of 101 appointments – were women, according to data compiled by quarterly journal Directors & Boards.  That's the highest number and percentage since the publication began counting in 1994.

Moreover, some of the companies selecting women during this period are among the largest.

• Some of the new appointees are joining big companies.  Microsoft named to its board Maria Klawe, president of Harvey Mudd College; Chiquita Brands International named Kerrii Anderson, former CEO of Wendy's International; ConAgra Foods named Joie Gregor, who served as assistant to the president for presidential personnel under George W. Bush; and VF Corp. named Juliana Chugg, senior vice president at General Mills. Directors & Boards tracks every new director it notices, monitoring press releases, specialized websites and appointment announcements it receives.

And why is this the case?  CEO's are less willing to serve.  As a result, "boards are being forced to look at a broader pool of candidates."  Moreover, once the number of women on the board increase, "they may be opening doors to other women's candidacies."

This is only a single three month period.  It may not continue.  Moreover, other studies in the article suggest that no great surge in women on the board is taking place.  Finally, the analysis says nothing about other under represented groups.  Nonetheless, it does belie the notion that increased regulation or increased board duties somehow shrinks the pool.  It merely requires companies to take broader perspective on the nature of the pool, something they should be doing anyway.

Full post as published by The Race to the Bottom on June 11, 2009 (boomark / email).