Age diversity is an important factor to achieving diversity of thought. That’s how 91 percent of directors responded in our 2017 Annual Corporate Directors Survey. They even rated age diversity higher than any other element of diversity, including gender and race. However, we noticed that more than half (52%) of directors said they have age diversity on their board and don’t need any more of it. Herein lies the disconnect: Our definition of age diversity differs from that of most directors.
So what does age diversity mean to corporate directors? Maybe it means their board has directors who are in their 50s, 60s and 70s. Or perhaps they have one director who is 55 and one who is 80. With an average age of 63 for independent directors on S&P 500 boards (and going up), what it likely means is that they don’t have many directors who are 50 or younger. In fact, there are more directors aged 75 or older in S&P 500 boardrooms than there are 50 or under, according to our new research paper, Board composition: Consider the value of younger directors on your board. That figure demonstrates that there really isn’t a broad definition of age diversity.
To find out more about age diversity on US public company boards, we analyzed the population of directors aged 50 or under serving on boards of S&P 500 companies as of the end of 2017. We wanted to see who these directors are and what their board service looks like. What we found out is that there really aren’t many of them at all: According to our analysis of BoardEx data, directors aged 50 or under make up only 6 percent of the seats on S&P 500 company boards.
What does this mean for your board? First, if it hasn’t already, your board should consider age diversity and determine what it means for your company. Second, you might consider adding a younger director or two to the board. Most younger directors (96%) have active jobs or roles, so they can bring critical workforce skills and know-how back to the boardroom. They are more likely to have hands-on experience with newer technologies like artificial intelligence or the internet of things, technologies that companies are investing in and adopting to get ahead and stay competitive. And, in many cases, younger directors are closer to the consumers that their companies are targeting. They’re also closer to millennials, whose spending habits and workplace expectations are turning traditional marketing and human resources processes and plans on their heads.
We know that board composition and refreshment is a hot topic today, and the topic of age diversity is a good conversation for boards to have. Though there’s not one accepted dictionary definition of what age diversity is, boards may also want to develop an agreed-upon understanding about what it means to their board—and why all aspects of diversity make for healthy board discussions and better board performance.
One of the most interesting data points that came out of our new report details how companies made room for younger directors. For 62 percent of the S&P 500 board seats held by independent directors 50 and under, companies increased their board size to accommodate them. The board did not wait for traditional succession planning tools to play out, such as a director leaving the board due to retirement or term limits. Increasing board size to bring younger directors on as soon as possible indicates a real desire for and appreciation of the value those individuals would bring to the boardroom. That alone should tell you that age diversity is something to consider for your board.
Paul S. Williams is a partner in the Chicago office of Major, Lindsey & Africa, the nation’s leading executive legal search firm, andis a member of the board of directors for three public companies: Bob Evans Farms, Compass Minerals, and Essendant. He recently was named president of the NACD Chicago Chapter, and has served as the lead independent director of State Auto Financial Corp. The NACD team recently sat down with Williams to discuss his insights on board diversity and to ask him how to make the most of the 2017 Global Board Leaders’ Summit.
NACD: You are a fierce advocate for greater diversity in the boardroom. Could you tell us why diversity at the highest level of a company is so important?
Williams: As a director, I feel a sense of obligation to make sure that I am helping to pave the way for diversity on boards. Unfortunately, there have not been many people of color that have served on public company boards. I think when you step back and think of the credibility of these boards—the credibility of corporate boards with the rest of the business world and the rest of society—it’s incumbent upon us to demonstrate that diversity within companies should start with the board.
When I say that I am a staunch advocate of diversity, I don’t want to limit it to ethnic diversity. I feel strongly about gender diversity, as well as diversity of ethnicity and sexual orientation. I truly believe these boards need to be diverse in all aspects.
Boards also need to be diverse experientially. Directors can’t all be people with similar backgrounds and ways of looking at critical business issues. It’s important that the discussions in our respective boardrooms include truly diverse views.
NACD: What kind of impact do you think a diverse board has on company culture?
Williams: I think it has a tremendous impact. When a management team sees a diverse board talking the talk and walking the walk, it sends a message that the board has taken to heart the importance of diversity. As a board, we don’t want to be hypocritical. Boards without diversity undermine the management team’s ability to bring about change.
A diverse board definitely impacts corporate culture in a number of ways, starting with the commitment to diversity within the company. There’s a sense of appreciation for people who bring different perspectives. It sets a tone of progressiveness and the mandate of being open to different ideas.
Diversity as a concept is somewhat intangible. Compared with financial results, it’s harder to measure. Yet I believe a company can’t have impressive financial results without an underlying culture that is productive and effective.
How can directors learn more about the importance of diversity?
Last year I attended NACD’s Global Board Leaders’ Summit. It was uplifting to be able to go to Summit and meet a number of other diverse directors. I knew that I would be assuming leadership of the NACD Chicago Chapter and thought it would be great to meet other chapter leaders. I had heard rave reviews about the programs and I wasn’t disappointed.
The sheer number of attendees at Summit is impressive. There is such a diversity of experience and expertise at Summit. It gave me an opportunity to meet people from around the country to network with and discuss the challenges boards are facing in terms of board diversity and other challenges.
What advice would give to someone attending Summit for the first time?
Get out of your comfort zone and meet new people. It can be tempting for people who are more introverted to stay with the people they know. Sit at a table with folks you have never met, or who are from a different part of the country, or who sit on boards that are in different industries.
Have a game plan in advance, especially in terms of programs you plan to attend. It’s important to know which programs you want to focus on.
Most importantly, have fun! Really allow yourself to enjoy the things that come up in the spur of the moment, whether it’s talking to someone that you didn’t anticipate meeting, or going up to one of the speakers after a program and asking a follow-up question.
Click here to learn more about diversity-specific programming offered at the 2017 Global Board Leaders’ Summit.
The demographic and expertise-based makeup of public company boards has come under increasing scrutiny from investors as numerous studies continue to correlate elements of diversity with improved company performance.
The National Association of Corporate Directors’ Report of the NACD 2016 Blue Ribbon Commission on Building the Strategic-Asset Board emphasized the essential task of assembling and assessing a board best fit to tackle the challenges of the constantly-changing business environment. At its core, the successful strategic-asset board is a mix of directors with diverse backgrounds who are fit to the purpose of complex oversight. And the demand for diversity is not just about market-based performance—the evidence also shows that diverse boards engage in more robust debates, make decisions that are sounder than they would be otherwise, better understand their customers, and attract higher-performing employees.
For smaller public companies in the U.S., underperformance in board diversity is even more pronounced. In November 2016, Equilar released a report revealing that small public companies lag behind S&P 500 companies when it comes to board diversity. For example, 23.3 percent of Russell 3000 companies in 2016 had all-male boards versus 1.4 percent of S&P 500 boards.
But does this study tell the whole story? Gender diversity on boards understandably receives the most attention because it’s one of the easiest metrics to quantify. However, measuring progress with the broad brush stroke of S&P 500 (or even Russell 3000) gender statistics does a disservice to the full story of diversity on a company’s board. Diversity in the boardroom best serves a corporation when it’s addressed in a holistic manner, taking into account age, experience, race, and skill sets along with gender. In fact, when the U.S. Securities and Exchange Commission (SEC) adopted diversity disclosure rules in 2009, it allowed companies to provide their own definition of diversity.
At Nasdaq, we’ve taken a detailed look at the board composition of listed companies, including those too small to be included in much-publicized diversity studies. In doing so, we found promising signs of progress. For example, 14 Nasdaq companies have reached or exceeded gender parity in the boardroom versus five companies in the S&P 500. In 2016, 75 women were elected to a Nasdaq-listed company board for the first time. Many of these women came from outside the C-suite, recruited from non-corporate professional disciplines such as university administration, government, medicine, public education, and journalism.
We also discovered that many Nasdaq companies have compelling stories to tell with respect to board composition and their own diversity of age, gender, race, and skill sets. Unfortunately, their efforts go largely unnoticed for the simple reason that they aren’t sharing their story. Only a handful of companies highlight board composition in their proxies using charts and graphs to summarize their board profile metrics. Yet these metrics offer stakeholders valuable insights into the board’s ability to oversee and support management and its strategic plan.
At Nasdaq, we see ourselves not just as a public company, but also as a model for our nearly 3,000 listed issuers. One example of this is our 2016 Proxy Statement in which we enhanced board transparency through graphics and statistics on a variety of metrics. This data illustrates not only the gender diversity of our board, but also the diversity of skills and experience present. We believe this information is valuable for shareholders and the market and we will continue to share it.
As the head of the SEC, an agency focused on disclosure to investors, Chair Mary Jo White observed in a recent speech that “A growing number of company proxy statements have recently begun to voluntarily provide an analysis of data, accompanied by pie charts and bar graphs, to describe the state of the board’s gender, race and ethnic diversity composition, sometimes in addition to other categories… This more specific information is clearly more useful to investors.” In fact, we found a number of Nasdaq-listed companies (both small and large) that shared diversity metrics around board composition in their proxy statements in 2016. These companies include:
As companies continue to prepare for the upcoming proxy season, we encourage your board to consider simple report enhancements that increase the transparency around the diversity of boards, including disclosing not only a board member’s gender and age, but also their ethnicity, skills, and experience. Until such transparency of board composition metrics becomes the norm, the full story of corporate board diversity and the valuable insights it provides to investors will remain obscured.
Lisa Roberts is a vice president in Nasdaq’s Legal and Regulatory Group, where she co-leads the Listing Qualifications department and advises on governance matters for our issuer community. She also manages our Governance Clearinghouse website, which includes original articles on a variety of topics relevant to public companies, such as market structure, corporate sustainability, boardroom diversity, legislative advocacy, cybersecurity, and risk management. This site is available to all public companies and their advisors free of charge.
This communication and the content found by following any link herein are being provided to you by Nasdaq, Inc. for informational purposes only. The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular situation and nothing contained herein should be construed as legal advice.