Ac­tivist in­vestors leave com­pany boards more white, more male

The Oklahoman (Sunday) - - BUSINESS - BY LAURA COLBY

Share­holder ac­tivists say they shake up com­pa­nies by bring­ing in new, bet­ter ideas. What they don’t bring, it turns out, is women. Or peo­ple of color.

Firms tar­geted by ac­tivists end up with more white men on their boards, often re­plac­ing women and mi­nori­ties in the process, ac­cord­ing to a study by proxy vot­ing firm ISS. The re­searchers looked at 380 board seats spread across 93 com­pa­nies in the Stan­dard & Poor’s 1500 In­dex tar­geted by ac­tivists be­tween 2011 and 2015.

A sep­a­rate Bloomberg News anal­y­sis of the same pe­riod found that five of the big­gest U.S. ac­tivist funds sought 174 board po­si­tions on Stan­dard & Poor’s 500 com­pa­nies in the same pe­riod but nom­i­nated women only seven times.

The ISS study — which looked at direc­tors nom­i­nated by dis­si­dents and by the boards them­selves in re­sponse to ac­tivism — found that women made up 8.4 per­cent of this group, com­pared with 25 per­cent of new direc­tors at all S&P 1500 com­pa­nies in 2015. Peo­ple of color ac­counted for fewer than 5 per­cent, com­pared with 13 per­cent of new S&P 1500 direc­tors that year.

The de­cline is no­table es­pe­cially be­cause it came dur­ing a pe­riod when women and peo­ple of color in­creased their board rep­re­sen­ta­tion over­all. “It’s a se­ri­ous anom­aly,” said Jon Lukom­nik, ex­ec­u­tive di­rec­tor of the In­vestor Re­spon­si­bil­ity Re­search Cen­ter In­sti­tute, which fi­nanced the re­search. “In an ac­tivist sit­u­a­tion, di­ver­sity seems to be left off the list. Ac­tivists have not been con­sid­er­ing di­ver­sity — and they should.”

Mean­while, in­sti­tu­tional in­vestors are in­creas­ingly de­mand­ing that boards in­clude more women and peo­ple of color, often cit­ing re­search that shows di­verse groups make bet­ter de­ci­sions and lead to greater prof­itabil­ity. Black­Rock, State Street and oth­ers have promised to vote against boards that fail to ad­dress gen­der bal­ance.

“Some of these things get for­got­ten when ac­tivism en­ters the scene,” said Pa­trick McGurn, ISS’s head of strate­gic re­search and one of the study’s au­thors. “It should be of con­cern to in­vestors, and for the board it may be an op­por­tu­nity lost.”

Be­cause many boards have few women or mi­nor­ity mem­bers to start with, ac­tivist cam­paigns leave some com­pa­nies with a group of direc­tors that’s en­tirely male, en­tirely white or both. The per­cent­age of all-male boards in­creased to 17 per­cent from 13 per­cent. Dur­ing the same pe­riod, the share of com­pa­nies in the S&P 1500 with ex­clu­sively male direc­tors de­clined by 13 per­cent­age points.

The per­cent­age of boards with at least one mi­nor­ity di­rec­tor also de­creased, drop­ping to 52 per­cent from 56 per­cent. In the S&P 1500 over­all, about 57 per­cent of com­pa­nies have at least one per­son of color on their boards.

The re­port didn’t spec­u­late as to why ac­tivist ac­tion seems to push out women and mi­nori­ties. But most of the dis­si­dents are white men from the hedge fund in­dus­try, and their net­work of board nom­i­nees may come from “a good old boys net­work,” said Lukom­nik. “Many ac­tivists have re­peat nom­i­nees and they tend to be non-di­verse.”

Ac­tivism does bring new blood to the com­pa­nies in one area: age. The av­er­age age of board mem­bers ap­pointed by dis­si­dent share­hold­ers was 53, while those ap­pointed by the boards of tar­geted com­pa­nies were 56 on av­er­age. That brought the av­er­age age down to 59.6 years, com­pared with 62.5 for the S&P 1500 over­all, the re­port said.

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