When an investor that controls $6 trillion has questions for the firms it owns, company executives tend to provide answers. But when it comes to BlackRock wanting to know why more women aren’t getting on corporate boards, the asset management firm doesn’t like what it is hearing.
Last year, BlackRock sent letters to companies in the Russell 1000 stock index that do not have at least two women on its board, wanting explanations for the lack of progress. Some responses from the companies include not needing one, not being able to find qualified female candidates, and not being a consumer-facing company, said BlackRock’s global head of stewardship, Michelle Edkins, at an investor conference recently. “On board diversity, frankly some of the answers we got were from the 1880s,” Edkins bluntly told the audience.
Experts say the attitudes certainly aren’t ideal and potentially counterproductive. “Attitudes and biases take time to evolve,” says Tierney Remick, vice chairman and co-leader for board and CEO services with Korn Ferry. “But that lack of openness can ultimately be limiting in terms of what’s best for the company, consumers, and other stakeholders.”
In the first five months of 2018, women accounted for 248, or 31%, of new board directors at the country’s 3,000 biggest publicly traded companies, according to proxy advisory firm Institutional Shareholder Services. Still, women currently occupy only 18% of board seats at the biggest companies, and only 10% of lead independent directors and 4% of board chairs are women.
To be sure, numerous studies show that companies with more diverse boards and leadership teams perform better financially than their peers. A recent Korn Ferry study also found that having more females in leadership positions also helps improve employee engagement considerably.
One factor stalling the elevation of women to corporate boards is that the process of filling vacant director positions has historically been done by word of mouth. Experts say this informal process benefits men in senior leadership roles because incumbent directors have more familiarity and access to them. There are also simply more men in senior leadership roles with the necessary experience, such as operational roles with profit-and-loss responsibility. Jane Stevenson, Korn Ferry’s global leader for CEO succession, says that as organizations build out their talent pipeline to get more women the experience they need, the potential director pool will increase in tandem.
“Organizations and boards that believe advancing women is essential can fill roles without sacrificing quality,” says Stevenson. “The reality is that for most organizations, increasing the pool of highly qualified female director candidates is a priority.” Put another way, as organizations adjust their businesses to reflect their customer bases and the world at large, boards will in turn become more strategic about having governance representation in sync with that objective as well. In some ways, it is already happening.
Jane Marcus, a Korn Ferry senior client partner who specializes in financial services leadership, says it is important to remember that the diversity push among asset managers is only getting started. She says that as BlackRock, State Street, Vanguard, and others investment giants pressure boards financially and through their votes, “they will broaden out the scope of whom they see as directors and more action will happen.”