Data shows that the higher you go in an organization’s ranks, the less diversity you’ll observe. The rungs of senior leadership are fundamentally broken, making it difficult for women and employees from underrepresented racial groups to climb their way up. We see this lack of diversity in board rooms too. Despite the numerous reports about the benefits of board diversity, only 4.8% of corporate board members of Fortune 500 companies were women of color in 2018. Although efforts have been made to increase board diversity in recent years, a new report from Heidrick & Struggles reveals slowing progress on Fortune 500 boards.
The report found a retreat to previous priorities. The most telling points are:
- An increase in the share of seats going to directors with CEO experience, 43% compared to 40% in 2021, and CFO experience, 18% compared to 14% in 2021.
- A decrease in the share of seats for first-time public board directors: 32%, down from 43% in the previous year.
- A decrease in appointments of those of underrepresented groups: 40% of seats went to women (compared to 45% in 2021), and 34% went to racial or ethnic minorities (compared to 41% in 2021). The decrease in the share of seats going to racially or ethnically diverse directors was largely driven by a decrease in seats going to Black and African American directors, 17% in 2022, compared to 26% in 2021.
The lack of diversity at the CEO and CFO levels carries over into board positions when it is a qualifier for board membership. The decrease in first-time directors further limits the opportunities for underrepresented groups to serve on boards.
Why We Should Be Concerned
When companies face uncertainty or a tumultuous economy, they often retreat to previous priorities, sacrificing their DEI commitments and progress for the comfort and safety of familiarity. We began to experience company reactions in 2022, and in 2023, we are seeing ongoing economic uncertainty and companies scaling back and thinking more about survival than growth.
This board appointment retreat to previous priorities reveals the strong perception that CEO and CFO experience is necessary to navigate and manage ongoing economic and political uncertainty. It also reveals the lack of understanding about the value of women and underrepresented groups in the boardroom. The growing demand for companies to show up in the increasingly evolving cultural and political landscape ought to make boards hungrier for fresh perspectives that can better reflect the diversity of the global community. The trends identified in the report are even more curious when viewed through the lens of increasing pressure on “overboarding” for directors.
Where We Go from Here
Tough times expose a company’s true commitments. Companies committed to diversity through all levels of their organization should stay especially vigilant this year to ensure that they don’t regress on their DEI goals and are prioritizing it at the organization’s highest levels. Members of PracticalESG can take advantage of several checklists to help them develop, implement and assess their DEI programs.