Pressure to speed up glacial progress on adding more women and minorities to corporate boards has brought a rush of new business for specialist headhunters.

After Nasdaq announced in December that companies listed on its exchange should have at least one woman and one member of an under-represented minority on their boards, companies have called in recruiting firms, often asking them to broaden their searches beyond the usual pool of former top executives.

Some businesses also want help with embedding diversity in board succession plans and advice on how to tackle conversations about ethnicity and sexual orientation at the highest corporate level.

In 2008, only 8 per cent of board members at Russell 3000 companies identified their race as non-white, according to advisory group Institutional Shareholder Services. By 2020, after more than a decade of corporate pledges to improve diversity in a country where 40 per cent of the population is not white, the figure had risen to only 12 per cent.

This year’s widespread demonstrations against racial inequality further highlighted the lack of diversity at the top of most companies, adding impetus to those pushing for more action.

In December, BlackRock, the $7.8tn asset manager, said it would ask companies in the US and Europe to disclose ethnic diversity statistics to try to encourage change.

For now, senior appointments of non-white candidates are rare enough that they still make headlines. In December, Starbucks announced Mellody Hobson would become the chair of its board in 2021. She is only the second black woman to chair an S&P500 company. Ursula Burns of Xerox became the first a decade ago.

Some companies say they cannot find enough qualified minority candidates, former American Express chief executive Kenneth Chenault remarked in December, but he said this could be an easy excuse to justify a lack of diversity.

“If you simply take the position that the status quo approach and processes are the ones that you’re going to follow, then you’re not going to make progress,” Mr Chenault said at the Economic Club of New York.

A diversity drive by US investors, exchanges and state legislators will force companies to widen their networks, said Margot McShane, a board and CEO hiring specialist at Russell Reynolds.

“There’s a race for talent” in public companies, private equity-backed groups and pre-IPO businesses alike, she said. “The highest quality diverse candidates — everyone’s calling them. Boards are going to have to look outside the obvious suspects as well as those within their networks because there aren’t enough of them.”

Her own firm had seen “a dramatic uptick” in demand for more diverse lists of board candidates since this summer’s Black Lives Matter protests, she said. It has also had many more calls since Nasdaq said listed companies should have at least two “diverse” directors.

Companies like to fill their boards with retired chief executives and chief financial officers — two jobs that are traditionally dominated by white men. According to Cynthia Soledad, co-lead of diversity and inclusion at recruiter Egon Zehnder, they will need to broaden their searches to include chief marketing leaders, general counsels and other top managers to try to improve diversity. 

She also said that immediately after Nasdaq’s announcement, private equity clients with portfolio companies poised to go public started asking for advice about how to talk to people on diversity and sexual orientation. “There is an interest in guidance around asking about identity.” 

According to a report published in December by Egon Zehnder, one of the world’s largest headhunters, black directors make up just 4 per cent of all US directors in the Russell 3000 index. In the UK, 37 per cent of FTSE 100 companies surveyed do not have a non-white corporate director, the report found. 

Just 23 per cent of board positions are held by women, up marginally from 20.4 per cent in 2018, Egon Zehnder said. “The results are clear — while there is progress in gender diversity globally, the rate of change is insignificant,” it added.

The boardroom reform movement has been bolstered by a growing body of research showing that diversity improves performance. This month, Moody’s published an analysis of nearly 1,700 North American and European companies showing “a positive relationship between board gender diversity and credit quality”.

But external pressure is also growing. Beginning in 2021, ISS, which has significant influence on how asset managers vote at annual meetings, will highlight company boards that lack ethnic diversity. And from 2022, it is planning to generally recommend that investors vote against certain directors on boards lacking diversity.

Executive recruiter Heidrick & Struggles said two-thirds of its North American board director placements this year have been women or minorities. The firm has a policy that every board member search includes at least 50 per cent diverse candidates.

Lyndon Taylor, head of Heidrick & Struggles’ diversity and inclusion practice, said his business has “seen sustained and increased demand” this year.

“Stakeholders feel there has not been substantial progress,” he observed, adding that companies now needed to switch “from being well-intentioned to intentional”.


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