The drive for reform has reached the boardroom
How CT’s Fortune 500s are diversifying their boards
Amid the turmoil of the past year, companies across the country have faced increasing pressure to advance racial justice and equality and make their organizations more diverse.
As publicly traded companies prepare for upcoming annual shareholder meetings, the drive for reform has reached the boardroom.
A growing number of stakeholders are calling for more women and people of color to serve on boards of directors, arguing that increasing their representation is necessary to respond to the needs of diverse groups of employees and customers. The push is coming from inside and outside corporations, with those advocating for change including investment firms such as Greenwich-based Mill Road Capital.
“Coming through 2020, the combination of the pandemic and racial reckoning has really forced a much closer examination around these social-justice issues,” James D. White, the former CEO of Jamba Juice and Mill Road’s new head of board governance and diversity initiatives, said in an interview. “You’ve got CEOs and boards taking different kinds of stands than they’ve taken historically. They’re being held accountable by a combination of employees and consumers, and both of those stakeholder groups are voting with their wallets and feet.”
Despite the ever-increasing diversification of the American population, white men still dominate major companies’ boards of directors.
None of the 13 firms on the 2020 Fortune 500 list that are headquartered in Connecticut has a board in which women comprise the majority of members. At the same time, some of those boards have only one director representing a racial or ethnic minority group.
“Boards are generally closed communities of people who bring a very similar background and perspective to board governance,” Thomas Lynch, founder and senior managing director of Mill Road, said in an interview. “That becomes more and more problematic as the rate of change in the economy increases and the importance of accessing human capital across the economy becomes more and more important.”
For their part, Connecticut’s Fortune 500 companies said that they value diversity and a number of them said that they want to bring in more women and minority directors.
Norwalk-based Xerox Holdings announced last month a plan to expand its board’s membership from seven to nine directors. At the same time, it added Nichelle Maynard-Elliott and Margarita Paláu-Hernández to its slate of nominees running for election to its board of directors at its annual shareholders meeting on May 20.
The election of MaynardElliott and Paláu-Hernández would result in a board with three women directors, one Black director and two Hispanic directors.
Among the Connecticut Fortune 500 firms, women are most represented on the boards of Stamford-based Synchrony, The Hartford, Norwalk-based Booking Holdings and New Britainbased Stanley Black & Decker. Each has four female directors.
Synchrony, the country’s largest private-label credit card provider, also leads the state’s Fortune 500 firms in its board’s racial and ethnic diversity. It has four minority directors among a total of 12 members.
“Diversity and inclusion are critically important to Synchrony’s board,” Margaret Keane, Synchrony’s executive chairwoman and former CEO, said in an email. “The board understands at its core that strong, diverse representation isn’t about fairness or policy. It’s a business imperative. Diversity drives new and better thinking while fueling growth for Synchrony’s business and its people.”
Stamford-based United Rentals, the world’s largest equipment-rental company, said it has four “ethnically diverse” directors on its 11-member board.
“Our company has benefited from the unique perspectives and breadth of personal experiences that come from diversity in the boardroom,” Michael Kneeland, United’s chairman and former CEO, said in an email. “Culture building starts at the top, and I am most proud of the genuine partnership between our board and management team on strategies and actions that strengthen diversity, equity and inclusivity throughout United Rentals.”
At the same time, women and people of color remain underrepresented in board leadership roles. Synchrony and Norwalk-based Frontier Communications are the only Connecticut-based Fortune 500 firms that have a chairwoman. And nearly all of those 13 firms’ chairpersons are white.
Nationwide, white men on corporate boards are more likely to hold leadership positions even when board members who are women or minorities have similar experience, according to an academic study published last year by the University of Delaware’s Laura Casares Field, the University of South Carolina’s Matthew Souther and the University of Missouri’s Adam Yore.
“Whether it’s explicit bias or implicit bias, I can’t say,” Field, who is the interim director of the University of Delaware’s John L. Weinberg Center for Corporate Governance, said in an interview. “But I can say that with the same type of experience, you are more likely to get ahead if you’re a white male than if you are female and/or of color.”
Hearst Connecticut Media reached out to all 13 of the Connecticut-headquartered Fortune 500 companies asking for their chairpersons to comment on their boards’ diversity and inclusion initiatives. Synchrony and United Rentals were the only companies that provided on-the-record responses from their chairpersons.
The Hartford provided a statement from Matthew Sturdevant, a company spokesman.
“We have received recognition for the representation of women on our board and remain committed to a diverse membership with varying perspectives and breadth of experience, which are an important attribute of a well-functioning board and fosters positive, robust discussion at meetings,” Sturdevant said in the statement. “The nominating committee considers diversity in the context of the board as a whole and takes into account considerations relating to race, gender, ethnicity and the range of perspectives the directors bring to their board work.”
Charter Communications provided a statement not signed by any individual.
“Charter is committed to diversity and inclusion in every aspect of our business, from our products and services, workforce and growing base of diverse suppliers, to how we empower the communities we serve,” the company said in the statement. “Our workforce is highly diverse, and our programs continue to recruit diverse talent, and we have exceeded $1 billion in diverse spend for the last three years.”
Stanley Black & Decker also provided an unsigned statement.
“We are committed to maintaining a diverse, wellrounded and independent board. The board is committed to diversity and inclusion at the board level and throughout the company and its leadership,” the company said in the statement. “Our board reflects the diverse set of experiences, perspectives and skills necessary to position the company for the future.”
The other eight companies either did not provide on-the-record statements or did not respond to Hearst’s inquiries.
Investing in change
Mill Road aims to improve corporate leadership with the launch in this second quarter of 2021 of its Progressive Governance Fund, which intends to take equity positions ranging between 8 percent and 15 percent in small publicly traded companies.
The fund has a target size of about $500 million. Its investor base will be similar to those of Mill Road’s previous three funds, whose investors have included state pension funds, foundations, endowments and wealthy individuals.
But the Progressive Governance Fund will do more than just invest. Mill Road aims to catalyze change in the companies supported by the new fund by nominating candidates for those firms’ boards. It has committed to having women and people of color comprise at least 50 percent of its nominees.
In White, it has brought in a longtime executive who has served on more than a dozen boards. He and Lynch have known each other for several years and served together on the board of Panera Bread.
Last month, White was appointed to the board of Chief Executives for Corporate Purpose; its founders include the late actor and philanthropist Paul Newman, who was a longtime Westport resident. Among other roles, White cofounded and chairs the Director’s Academy, a nonprofit focused on developing the next generation of diverse directors.
White could serve on the boards of some companies supported by Mill Road’s new fund. He is also a managing director at the firm.
With their new fund’s “sponsoring investor” structure, Mill Road officials said that they would constructively engage with companies. They contrasted their strategy with the approaches of passive index funds and activist investors.
“Passive index funds have no economic interest in improving the performance of companies because their only objective is to tie an index, not to beat it,” Lynch said. “If they invest costs in improving any single company or groups of companies, they get no incremental benefit versus their competition, but a lower profit margin.
“The only alternative out there that provides input to companies are the conventional adversarial activists. They tend to be antagonistic toward management and short-term focused. And virtually across the board, when activists attack companies, it destroys diversity.”
White said he saw the activist scenario that Lynch described play out during his seven years at Jamba Juice.
“When I joined as CEO, there were no women (on the board). At the height, we had two women and myself, so we were a third women and people of color,” said White, who is African American. “Unfortunately, the diversity eroded as the activists came through and I transitioned out.”
Corporate-governance experts such as Field see promise in Mill Road’s new fund.
“Just being made aware can make a change,” Field said. “Having a diversity policy makes you think about it, having diverse members on the nominating committee probably makes the board think more about who they bring in and leadership roles. And I think the investors making an issue of it and bringing it up is valuable if they want to affect change.”
Benefits of diversity
White and Lynch argue that more board diversity can catalyze many other changes including improved pay equity and more diverse and inclusive workforces.
“There’s an occasional assumption out there that you pay a penalty for diversity,” said Lynch, who is white. “We think it’s the exact opposite. Diversity actually creates value in companies. It inspires employees and motivates people throughout the organization who are women or people of color.”
In a piece published last year in the Harvard Business Review, White and co-author Joan C. Williams, a professor at the University of California, Hastings College of the Law, outlined the progress that Jamba Juice made during White’s time there. Those gains included a tripling of women and people of color among executives in Jamba Juice’s top three levels and an increase in the diversity of the top two echelons from 20 percent to 50 percent.
“Over that same period, the company’s market cap soared 500 percent — performance that we argue resulted from James’ efforts to create a true meritocracy that holds every group to the same standards,” White and Williams wrote. “When the whole workforce can bring its talents to the table, results are better than when only some people can.”
Synchrony’s Keane said that her experience working in a call center at the beginning of her career has helped her to understand the challenges women face in balancing work and family commitments.
“I believe this diversity of experience is critical on any corporate board. It provides perspective on what support employees need to be the most successful they can be,” Keane said. “For many women — and working parents in general — this includes offering flexible work arrangements as well as innovative programs and benefits such as virtual summer camps, afterschool programs and wellness coaches. Having diverse perspectives helps a board better relate and support the employees within an organization.”