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Ranks of US gender-diverse boards grow, but less than 25% of directors are women

At the beginning of 2018, the world's largest asset manager threw down a gender-diversity gauntlet by calling on companies to appoint a greater number of female directors. An S&P Global Market Intelligence analysis suggests the corporate world is responding to that challenge.

Public companies face growing investor pressure to improve diversity among their director ranks, underscoring a greater awareness of the need to address environmental, social and governance, or ESG, issues. In January, BlackRock Inc. Chairman and CEO Larry Fink warned companies that they risk losing the investing giant's support if they do not take steps to play a positive role in society. With more than $6 trillion in assets under management, BlackRock wrote in its 2018 proxy voting guidelines that it "would normally expect" to see at least two female directors on every board.

The firm also sent a letter asking companies in the Russell 1000 with fewer than two female directors what they are doing to increase board diversity. A lack of diversity "inhibits the company's capacity for long-term growth" and "undermines its ability to make effective strategic decisions," wrote BlackRock Global Head of Investment Stewardship Michelle Edkins.

BlackRock's message that change is afoot is having a profound effect.

"Starting off proxy season with the Larry Fink letter was a pretty big deal, and I've heard that referenced over and over and over again," Courteney Keatinge, director of ESG research at proxy advisory firm Glass Lewis, said in an interview. "When you are looking at an owner of that size ... you are going to have to take notice."

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The beginnings of a board gender-diversity sea change are evident in an S&P Global Market Intelligence analysis of companies in the Russell 1000, which tracks the 1,000 largest U.S. stocks by market capitalization. In March, 282 companies had fewer than two female directors. By Aug. 31, that number dropped to 242.

Companies in real estate, as well as technology, media and telecommunications, are struggling the most to meet BlackRock's mandate for board gender diversity. In both sectors, 35% of companies had fewer than two female directors as of Aug. 31.

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The picture is slightly brighter in the consumer sector, where 83% of companies in the Russell 1000 had two or more female directors. Skincare and makeup giant The Estée Lauder Cos. Inc. had eight female directors out of 17 total board members, the most in the index.

Estée Lauder added two female directors to its ranks since BlackRock issued its call to arms. The company's executive chairman, William Lauder, has been vocal in his commitment to gender diversity and is a member of the 30% Club, which launched in 2014 with the goal of reaching 30% female directors on S&P 100 boards by 2020.

"Generally speaking, consumer-facing companies tend to be a bit better about diversity, either because they think it's important to have a board that reflects their consumer base, or because they're more concerned about potential boycotts, or wanting to stay in the good graces of their customers," said Marc Goldstein, head of U.S. research at proxy advisory firm Institutional Shareholder Services.

The desire to appeal to clients applies to asset managers, too.

"If you're BlackRock and you're trying to get individuals to invest in your funds, you do not want to be seen as behind the times on an issue like that, particularly if you're chasing the millennial market," Goldstein said.

BlackRock is not alone in its gender-diversity push. Proxy advisory sources say board diversity is a growing priority for mainstream asset managers. And Goldstein pointed to an increasing number of "Rooney rule" shareholder proposals, modeled after the National Football League's approach to selecting coaches. The rule is named after former Pittsburgh Steelers owner Dan Rooney and requires that teams interview at least one minority candidate for coaching vacancies.

"Similarly, at the board level, every time there is a board vacancy anticipated to come up, you make sure that the shortlist of candidates that the nominating committee reviews includes either women or minority candidates, or perhaps both," Goldstein said.

In May, after some opposition, Amazon.com Inc. agreed to a Rooney rule shareholder proposal. The e-commerce company adopted a policy to include a "slate of diverse candidates" in director nominations. That same month, Facebook Inc. COO Sheryl Sandberg said the social media company will take a similar approach to selecting board members.

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Even in the comparatively diverse consumer industry, less than a quarter of total directors are women. Just eight companies in the index have boards that are at least half female — Omnicom Group Inc., Ulta Beauty Inc., Alliant Energy Corp., Best Buy Co. Inc., Casey's General Stores Inc., Macy's Inc., Navient Corp. and Viacom Inc. There were 43 companies in the index with zero female directors at Aug. 31.

Timothy Stark, client engagement and governance director at recruitment and compensation firm Equilar, dismissed the reasons companies provide for the lack of board diversity as "jive."

"Usually people in business try to explain it away: 'Well, we didn't intend to get all men on our board, we just hired the best candidates we could find.' But then you have just implied that the best candidates you could find were all men," Stark said.

Glass Lewis' Keatinge said she, too, hears some companies say they cannot find enough qualified women for their boards. But she says that is starting to change as large companies increasingly look outside the traditional CEO and CFO ranks to areas such as academia and science.

"Bank of America Corp. appointed a literal rocket scientist to their board last year," Keatinge said, referring to MIT professor Maria Zuber. "She worked at NASA. Those are the type of people who are eminently qualified to be looking at complex issues, but are maybe not in the traditional network."

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Click here for a spreadsheet listing all Russell 1000 constituents with the number of female directors as of Aug. 31, 2018.