Women make up about 20 percent of Fortune 1000 corporate board seats, and that number is even lower when smaller firms are factored in.
Equivalent percentages for African American membership on corporate boards is harder to come by, researchers say.
A new Illinois law requiring public corporations in Illinois to provide information on the diversity of their boards of directors will provide a rich new source of data on both questions, said Richard Benton, assistant professor of labor and employment relations at the University of Illinois.
House Bill 3394, signed into law Tuesday by Gov. J.B. Pritzker, requires companies headquartered in Illinois to provide data on the racial, ethnic and gender makeup of their boards to the secretary of state’s office.
It also directs the UI system to analyze those numbers and publish reports with aggregate data as well as individualized ratings for each corporation.
Benton, who researches corporate boards, governance and networking, will lead that effort.
He said officials are still working out the details of how the information will be collected, so “I’m not exactly sure what the data is going to look like or what format it’s going to come in.” But he’s happy that Illinois is taking a data-driven approach.
The bill provides an opportunity to apply better data to questions about how diverse corporate boards really are, what the barriers are to improving diversity, and how it affects corporate outcomes, he said.
“Not to mention the advantage it will give to the state of Illinois in thinking about improving board diversity,” Benton said Wednesday. “It’s exciting.”
The quality of existing data on gender diversity on corporate boards is “quite good,” he said.
“A lot of the evidence shows that it’s been improving over the last decade and a half. We’ve seen an increase” to 20 percent or more, he said, though that obviously doesn’t match women’s overall participation in the labor force, which is close to 50 percent.
The evidence shows that having diverse membership on those boards improves all sorts of outcomes in both financial and “social” performance, Benton said.
“Diverse boards tend to be better at making decisions; they’re better at their monitoring roles; they tend to be associated with better performance,” he said.
'Huge area of research'
How do researchers know that? Market research firms and investment groups hire analysts to compile reports on corporate boards from company websites, statements filed with the Securities and Exchange Commission and other public sources, he said.
They compare data on board diversity with other indices that measure governance quality, risk-taking and financial malfeasance, for instance, Benton said.
There’s evidence that more diverse boards are better at limiting risk-taking, monitoring the chief executive officer and promoting social responsibility, he said.
“It’s a huge area of research,” he said.
Most academics believe that diverse groups are better at making decisions because they tend to have a broader range of experiences to draw from, he said.
“You get less groupthink in diverse groups,” he said.
Getting the racial breakdown of boards is more difficult, he said, as corporations until now weren’t required to report it, and there’s no central clearinghouse for that information.
“My guess is it’s harder for analysts to discern race and ethnicity just from going on websites and looking at pictures,” he said.
And there has been more attention on gender diversity, partly because the information is easier to get and because activist shareholders and investors have pushed for it, he said.
“I think this bill, in emphasizing other dimensions of diversity, will be able to shed some light on those other sides,” he said.
'A strategic imperative'
Racial diversity on corporate boards has gotten better over the decades, but “it’s still not where you’d like to see it,” he said.
An organization called “2020 Women on Boards,” which is pushing for 20 percent female representation by 2020, releases an annual report on corporate gender diversity.
That goal was reached last year for Fortune 1000 firms, so the organization began looking at firms listed on the Russell 3000 Index. Women hold an average of 17.7 percent of board seats among those 3,000 companies, but half of the firms have one or no women on their boards, according to the group’s latest Gender Diversity Index.
“Board diversity is not a social issue; it is a strategic imperative,” the report said.
The new Illinois measure originally contained much stronger language requiring corporations to have at last one African-American and one woman on their boards of directors. It was modeled after a California law requiring corporations there to have at last one woman board member.
But that requirement was later removed from the Illinois measure. The sponsor, state Rep. Emanuel “Chris” Welch, D-Hillside, has said the data gathered through the new law will “shine a light” and help determine if stronger measures are needed.
The reports are due Jan. 1 each year, starting in 2021. The UI's report will be due by the following March, according to the governor's office.