Leadership

Fewer Black executives were added to S&P 500 boards over the past year, a new analysis shows

Key Points
  • A new analysis from Spencer Stuart shows that Blacks only accounted for 11% of new directors over the past year.
  • People of color make up just 20% of all board members at those firms.
  • One hopeful piece of data shows that diversity leads to more diversity, with 71% of companies with minority directors having two or more.
VIDEO3:1203:12
New report measures boardroom diversity at top S&P 500 companies

Fewer Black executives were added to the boards of S&P 500 companies at a time when corporate America has made diversity a top priority.

While CEO action plans after last month's police killing of George Floyd and the subsequent protests against racial inequalities may take time to effect change, a new analysis shows that Blacks only accounted for 11% of new directors over the past year; down from 13% representation in the same period a year ago.

According to the 2020 S&P 500 Board Diversity Report from executive search firm Spencer Stuart, nearly all of the top 200 publicly traded firms have minority directors. However, people of color make up only 20% of all board members at those firms; up just 1 percentage point from last year.

Painfully slow board turnover is one of the main culprits, said Julie Hembrock Daum, who leads Spencer Stuart's North American board practice.

"In any given year, there's about 8% board seats that turn. This year, there were fewer than there were last year, so there are just fewer opportunities to bring new people into the boardroom. And think that has a lot to do with the slow change for both women and minorities," Daum told CNBC.

Minority women made no progress, with board representation stuck at 10% in 2020.

The latest findings raise an important question: Can companies prioritize diversity if it's not reflected in the boardroom where the big decisions are made?

"I think people understand now that it's important, and it's not going to go away and all of us are going to be looking at companies and what they do at their boards and at their management team," Daum said.

Minority board representation tends to vary among different sectors.

"Utilities, energy and real-estate are infrastructure-heavy businesses, with long capital investment cycles, and more business-to-business customers, which face lesser pressures of consumers who may value diversity and its resulting innovation benefits more," R. Paul Herman told CNBC. He's CEO of HIP Investor, a San Francisco firm that rates companies based how they handle environmental, social and governance issues.

One hopeful piece of Spencer Stuart data shows that diversity leads to more diversity, with 71% of companies with minority directors having two or more. Companies led by a person of color are also most likely to have more diversity in the boardroom.

Many experts believe that companies should define diversity as a metric when evaluating a manager's success.

Microsoft is doing just that, with CEO Satya Nadella unveiling plans to assess senior executives for promotion based on their efforts to promote diversity.

"I think most people do believe that there should be metrics within the company to encourage diversity, hiring, promotion, training, all of that. And that the board should be asking questions about that, and holding management responsible for those metrics, just like they hold them responsible for their financial metrics," Daum said.

In fact, companies lagging in gender and ethnic diversity were less likely to achieve above average profitability, according to McKinsey. Researchers at the consulting firm found that companies with more diverse executives were 33% more likely to see above average profits.

VIDEO1:3101:31
Tracking diversity in the boardroom