Divesting From Diversity: Corporate Boards Are Retreating From Their Equity Promises

When it comes to diversity, the boardroom is moving backwards. That's according to a new report by Heidrick & Struggles, which shows that the push for diverse corporate boards has not only slowed, but has reversed previous positive trends. In fact, the majority of new board seats on Fortune 500 companies went to ex-CEOs and ex-CFOs and those age 59 or older — in other words, those spots went to people more likely to be white men.

Women secured just 40% of new seats, down from 45% in the previous year, and 34% of seats went to racial or ethnic minorities, down from 41% previously. “I wish I could say it surprised me,” says Ritu Bhasin, Chief Executive Officer and Founder of bhasin consulting inc, a global DEI consulting firm. “But my experience as a DEI expert who's been doing this for almost two decades, the commitment to DEI in board diversity ebbs and flows. There's so much talk and not enough walk.”

The instability and uncertainty of the economic environment has boards reverting back to old norms, which reinforces barriers to access. During downturns, fear often leads public boards to recruit those who are or have been CEOs or CFOs of public companies. “If you look at this from an equity perspective, this is a systemic barrier,” says Bhasin. “We know that the overwhelming majority of CEOs and CFOs are cisgender, hetero, older, white men. If we have that requirement in place, it becomes a systemic impediment to attracting more diversity.”

Removing that requirement can be one of the most influential ways to expand board diversity. Public board recruitment often excludes CEOs and CFOs of privately-held companies or non-profits, which narrows the pool of qualified candidates considerably. According to the report, the share of board seats going to first-time public board directors fell to 32% in 2022 from 43% in 2021. But giving a seat to a first-timer doesn’t mean offering it to someone lacking the skills needed to succeed.

“Most public board candidates don't arrive at the doorstep of a public board without past board experience. They’ve been on multiple nonprofit boards, boards of private companies, on subcommittees within their own organization,” says Bhasin. “Just because you're a first time public board member does not mean you lack board governance experience. We have to broaden the lens through which we measure and evaluate for readiness or fitness and the ways in which we're recruiting.”

But Bhasin doesn’t see any of these troubling trends changing without accountability and regulation. Investors need to demand strong ESG initiatives and hold corporations to task about what they’re doing to increase these numbers. Board diversity legislation — like California’s Senate Bill 979 — has been struck down by the courts in the U.S., so the responsibility for accountability will continue to fall on investors, corporations, and the public.

Initiatives like the NASDAQ Board Diversity Rule, which requires listed companies to disclose their board-level diversity numbers and have (or explain why they don’t have) a diverse board member, can push the market in the right direction. But accountability from companies themselves and public pressure will be key to making a lasting change.

Having a diverse board isn’t just a nice-to-have: In a globalized market, it’s become imperative to business success, and should be considered part of the fiduciary responsibility to the organization. Client and customer bases are diverse and global, and decision makers at the highest levels need to reflect that reality.

Though the opposite is happening, boards should continue to embrace new perspectives in times of economic challenge. “Innovation and creativity are not born out of sameness, they’re born under difference,” says Bhasin. Having a diversity of fresh perspectives and problem-solving abilities only increases a corporation’s chance of succeeding in uncertain environments.

Bhasin points to the trouble corporations are having in hiring right now as a good way to bring in those with more talent management experience, which tends to be a field with a high percentage of women. “In this moment when there’s an explosion of issues around quiet quitting and hybrid work, boards could really benefit from having stronger talent management and HR expertise in their midst,” she says.

While women leaders can continue to develop their governance and financial literacy skills and experience, this isn’t a pipeline problem according to experts. Organizations like 50/50 Women on Boards continually advocate for these qualified women. Instead, it’s a systemic failure that won’t be rectified until boards recognize that diversity is a business imperative for corporate success long into the future.