Reasons for “Male and Pale” Boards

Cydney S. Posner is special counsel at Cooley LLP. This post is based on a Cooley memorandum by Ms. Posner. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).

Here is the lede from this WSJ article: “A stubborn paradox reigns across U.S. boardrooms: Companies are appointing more women to board seats than ever, yet the overall share of female directors is barely budging.” In comments to the WSJ, the managing director for corporate governance research at the Conference Board indicated that, in “the last two decades, there’s been a sweeping revolution in the field of corporate governance…. Yet if you look at the composition of the board, at its core, it remains the same at many public companies and quite resistant to change.’” Why is that? It’s not, as some have suggested, a lack of qualified women board candidates. Rather, according to the Conference Board, it’s that “average director tenure continues to be quite extensive (at 10 years or longer), board seats rarely become vacant and, when a spot is available, it is often taken by a seasoned director rather than a newcomer with no prior board experience.”

According to a new study from the Conference Board, looking at SEC filings in 2018, half of the Russell 3000 and 43% of the S&P 500 companies did not disclose any change in board composition. With low board turnover, the opportunities for increasing board diversity are necessarily more limited. As reported in the WSJ, the study found that, for companies in the Russell 3000, “the average director stays in the job for 10.4 years and about a quarter of them step down only after 15 years. The upshot is that boardrooms remain the preserve of older, mostly white men: Only 10% of Russell 3000 directors are 50 or younger, while about one-fifth are older than 70….” According to the study, the industries with the longest average director tenures were financials (13.2 years), consumer staples (11.1 years) and real estate (11 years). But even the shortest average tenure was just over eight years (healthcare industry).

Another impediment to increasing board diversity, the study found, is the continuing preference for selecting directors with prior board experience to fill empty board seats, Given the historic data regarding women on boards, this preference obviously narrows the pool of candidates. According to the study, only 25% of companies nominate a new director without prior public company board service. Interestingly, however, larger companies are more likely to nominate a newbie: the study showed that companies with annual revenue of at least $20 billion “are twice as likely to elect two first-time directors as those with an annual turnover of $1 billion or less (7.3 percent versus 3.2 percent).”

A Conference Board initiative advocates “a system where every other corporate board seat vacated by a retiring board member should be filled by a woman, while retaining existing female directors. However, even though women are elected as corporate directors in larger numbers than before, almost all board chair positions remain held by men (only 4.1 percent of Russell 3000 companies have a female board chair).”

Notwithstanding all the clamor for increased board gender diversity, including by institutional investors such as BlackRock and State Street Global Advisors, the study found that “a staggering 20 percent of firms in the Russell 3000 index still have no female representatives on their board.” While progress has occurred, as noted above, it has been slow. According to a recent study from Equilar, the percentage of women on the boards of the Russell 3000 increased from 18.0% to 18.5% in the fourth quarter of 2018, pushing the Equilar Gender Diversity Index to 0.37 (with 1.0 representing board gender parity). At that rate, gender parity would be expected by 2034.


The policies advanced by a number of large institutional investors have spurred some companies to enhance board diversity. For example, the voting guidelines regarding board composition issued for 2018 by BlackRock (reportedly the largest asset management firm) made clear that BlackRock expected “boards to be comprised of a diverse selection of individuals who bring their personal and professional experiences to bear in order to create a constructive debate of competing views and opinions in the boardroom. In addition to other elements of diversity, we would normally expect to see at least two women directors on every board.” (See this PubCo post.) BlackRock is certainly not the only asset manager to try to tackle this issue. For example, State Street Global Advisors, which initiated its “Fearless Girl” campaign in 2017, has announced that, starting in 2020, it will vote against the entire slate of board members on the nominating committee if a company does not have at least one woman on its board and has not engaged in successful dialogue on board gender diversity for three consecutive years. More generally, in its survey of over 60 institutional investors with an aggregate of $32 trillion under management, the EY Center for Board Matters reported that, among investors’ top priorities for companies in 2018, board composition, particularly gender diversity, was a top priority for 82%. About half of respondents reported that they consider board diversity in voting, while a quarter do so in the context of proxy contests and shareholder proposals. The driver appears to be the “interest in effective board composition, given the wide range of studies demonstrating the benefits of diversity, including how diverse perspectives enhance issue identification and problem-solving ability and impede ‘group think.’” (See this PubCo post.)

Two practices that are often viewed as accelerants of board change are well-structured board succession or refreshment policies and board evaluations. But the Conference Board study showed that only about a quarter of the Russell 3000 use mandatory age-based retirement policies to facilitate board turnover. With regard to board evaluations, the study indicated that “even though many board members consider the performance of at least one fellow director as suboptimal, in the Russell 3000 index, only 14.2 percent of companies disclose that the contribution of individual directors is reviewed annually.”


The Report of the NACD Blue Ribbon Commission on the Strategic-Asset Board has recommended that renominations of directors “should not be a default decision, but an annual consideration based on a number of factors, including an assessment of current and future skill sets and leadership styles that are needed on the board.” In addition, according to one NACD Blue Ribbon commissioner in 2016, instead of just waiting for directors to notify the nom/gov committee if they plan to leave, “‘[w]e need to shift the expectation from ‘serve as long as you want’ to ‘serve as long as you are needed.’ This ‘shift’ includes setting appropriate tenure expectations with any directors new to the board, as well as having what can be difficult conversations with longer-tenured directors if their experiences are no longer additive to the board.”

The Conference Board study also faulted the prevalence of staggered boards at smaller companies (under $1 billion in revenue) as an impediment to progress on board diversity. The study found that almost 60% of smaller companies have staggered boards, which means, of course, that only 1/3 of the board is up for election each year. Other culprits identified by the Conference Board were plurality voting standards (the standard for 51.5% of directors in the Russell 3000). The study also pointed to the low adoption rate of proxy access (15.5% of the Russell 3000), which might seem a little curious given that proxy access is not really used even at companies that have it.


An earlier study from consultant Spencer Stuart showed that, in 2018, 71% of boards of S&P 500 companies disclosed a mandatory retirement age. But the ages set for retirement in those policies “continue to climb. Of the universe of S&P 500 companies with retirement age policies, 43.5% set the age at 75 or older, compared with 42% last year and just 11% in 2008. Three boards have a retirement age of 80. More than half mandate retirement at age at 73 or higher.” As result, 56% of the directors who left these boards last year were 70 or older, and 36% served on the board for 15 or more years. For all directors that left boards of companies in the S&P 500 last year, the average age of departure was 68.4 and the average tenure was 12.7 years. Accordingly, the study concluded that, “[a]bsent changes in boardroom trends and refreshment practices, future turnover rates of S&P 500 boards will remain low. Only 16% of independent directors on boards with age caps are within three years of mandatory retirement[, and with] mandatory retirement ages rising, many have a long runway until they reach the age cap.” This article in the WSJ explained that the tendency to retain board members began around 2008, as a result of the financial crisis: according to an executive at Spencer Stuart, this “‘shift emerged during the financial crisis in 2008, when companies wanted to maximize stability and retain directors who knew their business well, … adding that a copycat mentality took over. Corporations watch each other’s policies closely, and what starts as an action taken by a few companies can quickly become an entrenched practice among a broader universe of firms.’” (See this PubCo post.)

A new factor that is expected to fuel a greater effort toward board gender diversity is California’s new board gender diversity mandate. That legislation, signed into law on September 30, 2018, requires that public companies (defined as corporations listed on major U.S. stock exchanges) that have principal executive offices located in California, no matter where they are incorporated, include a specified number of women on their boards. Under the new law, each public company will be required to have a minimum of one woman on its board of directors by the close of 2019. That minimum increases to two by December 31, 2021, if the corporation has five directors, and to three women directors if the corporation has six or more directors. (See this PubCo post.) The new law, while the first of its kind in the U.S., may not be the last. According to Bloomberg, “New Jersey and Massachusetts are considering similar legislation. Other states have passed non-binding guidelines, often as a precursor to legal action.” (See this PubCo post.) With the new California mandate in mind, Equilar looked at the GDI of California-based Russell 3000 companies for the fourth quarter of 2018. Equilar found that, currently, “18.1% of California directors are women—this positions the California GDI at 0.36, slightly lower than the entire Russell 3000. Additionally, 17.5% of companies headquartered in California do not have a women on their board, while 15.8% of all Russell 3000 boards have zero women.”

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