Report: Corporate boards lack diversity
First-of-its-kind study mandated by law shows Black, Latino directors largely missing in Illinois
A first-of-its-kind study mandated by a new state law shows Black and Latino directors are largely underrepresented at some of Illinois’ largest publicly held companies.
The analysis of 74 publicly traded companies found that 35% had two or more people of color on their boards, and 67% of them had two or more female directors. The boards ranged in size from four directors to 23.
The report released Monday by the University of Illinois at Urbana-Champaign was issued as part of a 2019 state law that requires publicly traded companies headquartered in Illinois to report the gender, racial and ethnic diversity of their boards annually; the first reports were due Jan. 1 of this year.
Though companies are not required to meet specific diversity targets, the law says boardrooms should be representative of Illinois’ population. Researchers compared the demographic information companies provided with population data from the 2019 U.S. Census, and found that boards on average had lower representation of Asians, Blacks and Latinos than Illinois’ population at large.
People of color make up about 40% of the state’s population, but accounted for an average of about 15% of board members at companies in the report, researchers found. Nineteen companies reported having no people of color on their boards.
The authors also used census data to measure the diversity of boards against workforce demographics in their respective industries.
“Companies, when they consider appointing people or electing people to the board of directors, they consider industry experience as an important condition. So that might be a useful benchmark,” said Richard Benton, assistant professor at U. of I.’s School of Labor and Employment Relations and co-author of the report.
The authors analyzed which companies had two or more women or people of color on their boards because that is a number prior research studies have used as a threshold, Benton said. A single director from a particular demographic group can often be characterized as a token, he said.
“Very long-standing research dating back to the 1970s suggests that a lone woman or minority in a work setting may not have equal opportunities to participate in discussions and may feel the increased pressure of being a sole representative of their group,” he said.
The report offers a limited view of how diverse some companies are. Privately held companies are not required to disclose their corporate board makeup, and some publicly traded companies with dual headquarters, such as Kraft Heinz, co-headquartered in Chicago and Pittsburgh, aren’t included in the report.
Six companies said at the time of filing data with the state they did not have any women or people of color on their boards: Lislebased truck maker Navistar International Corp.; Deer Park-based Eton Pharmaceuticals; Westell Technologies, a telecommunications equipment company based in Aurora; Chicago-based management firm Monroe Capital Corp.; IF Bancorp, the Watseka-based parent company of Iroquois Federal Savings and Loan Association; and Chicago-based industrial hardware distributor Lawson Products.
In December, Navistar appointed Janet Yeung, an Asian female executive, to its board. The company has hired The Kaleidoscope Group to help recruit and train people of color, said Donna Dorsey, the company’s chief people and diversity officer.
“Our goal is to shape strong corporate citizens and inspire personal growth and company innovation through real, healthy and unified dialogues from differing perspectives,” Dorsey said in an emailed statement Tuesday.
Eton Pharmaceuticals noted that more than 45% of employees at its corporate headquarters and 40% of its senior leadership team are women, and said in a statement Tuesday it is “constantly looking for talented employees of all ethnicities and genders to join our company and board of directors.”
Other companies did not respond to requests for comment. Lawson Products added a woman, Bianca Rhodes, to its board earlier this year, according to its website. Eight companies did not report the racial or ethnic identities of their directors, and two of those also did not report gender information, instead saying board members “did not self identify.”
Among the companies that provided sufficient data, the analysis found an absence of Black, Asian and Latino directors. Some 53% of companies reported having no Black board members, 70% had no Asian directors and 83% had no Latino directors.
The company with the biggest representation of racial and ethnic diversity in its boardroom was Professional Diversity Network, a Chicago-based recruiting firm for diverse talent. The report found 66.7% of its directors were people of color.
While comparing boardrooms with the state’s population is a good benchmark, the state needs to look at middle managers and how companies promote and help advance workers within the organization, said David Larcker, a professor at the Stanford Graduate School of Business, who focuses on corporate governance and diversity issues.
“This is a reasonable first step,” Larcker said. “But it doesn’t provide much of a view of how much diversity is looked at by all the heads of divisions at companies. Are they preparing diverse candidates in a way to address the apparent lack of diversity that we see at the top?”
Some companies are voluntarily beginning to share demographic information under a new Securities and Exchange Commission rule adopted in August asking companies to disclose information on their workforce that they consider material to their business.
Nasdaq filed a proposal with the SEC in December that would require companies listed on the exchange to release diversity statistics on their directors and include at least one woman and one person of color or self-identified member of the LGBTQ community on their boards. Companies that don’t meet the requirement would need to explain why they don’t in order to provide investors with more transparency on corporate diversity efforts.
Originally, Illinois lawmakers considered legislation that would have required companies to have at least one woman, African American and Latino on their boards, but the bill was modified by the Senate into a requirement to report directors’ demographic information.
Illinois House Speaker Emmanuel “Chris” Welch, who introduced the original bill, said in an interview Wednesday the report shows companies need to improve their diversity, and more data collection bills could help solidify efforts to require companies to have a certain number of workers or board members from diverse backgrounds.
For now, Welch said the finding might push some companies to start adding more women or people of color to their boards.
“I certainly believe public shaming works,” he said. “Companies spend a lot of money on their brand. One of the reasons this report card is important, it shows the consumer who believes in diversity, equity and inclusion where they should spend their money.”
Separately, a bill passed by the Illinois General Assembly in January would require private and public companies with more than 100 employees in the state to file an annual report of their workforce demographics with the Secretary of State by Jan. 1, 2023. The secretary of state would publish the data on its website. The bill awaits signature from Gov. J.B. Pritzker.
Last year, after the racial reckoning spurred by the death of George Floyd at the hands of Minneapolis police last May, many companies made commitments to increase diversity, including adding chief diversity officers and recruiting from historically Black colleges.
Benton said the lack of representation reflected in the report stems from companies not having clear steps to increase Black, Latino and Asian directors.
In addition to submitting diversity data, the state law requires companies to provide any specific policies and practices they have in place for promoting diversity and inclusion. The report found many companies pointed to existing nondiscrimination laws like the Equal Employment Opportunity Act. Though federal laws are important for promoting equity in the workplace, Benton said companies need to have their own plans to address the lack of diversity in their boardrooms.
“When you talk about leadership and boards, a nondiscrimination policy that may work for other levels of the organization may be a little less suited when you’re talking about the challenges in recruiting and electing directors,” he said.