The Deloitte 2014 Board Practices Report was published last week, and it highlights that corporate boards did become more diverse last year under pressure from investors and activist groups. The Deloitte report noted that 18% of corporate boards surveyed indicated they increased the number of women on their board in the past year, but there was only limited improvement in minority board representation. Corporate boards also remain skewed towards older members, with no increase in the number of younger board members since 2012. In fact, over half of the companies surveyed said that their youngest director is above the age of 50.

Breakdown of companies surveyed

boards Composition

Organizations lobbying for diversity in board composition

A growing number of activist organizations such as Catalyst, the 30% Coalition, 2020 Women on Boards, and Alliance for Board Diversity whose missions are to increase women and minority representation on company boards are emerging. Progress has admittedly been slow, but companies are gradually increasing the number of women on their boards. In 2014, around one-quarter of all companies responding said women make up 26% to 50% of the board, up from just 18% two years earlier.

boards Composition

boards Composition

Increases in the number of female BoD members has been notable in large caps, small caps, and financial services companies, with solid 7, 16, and 12 percentage point increases in these sectors, respectively. Somewhat similar trends on a smaller scale can also be seen with minority representation. The largest improvement in the last two years is the 9% increase of financial services companies that have 26% to 50% minorities on their boards. Unfortunately, not a single small cap company BoD surveyed reported an increase in minority directors during the past year.

boards Composition

boards Composition

Minimal progress on investors concerns about long boards’ tenure and little turnover

Many small and large investors have been expressing concern over director tenure recently. A few have even raised concerns that long-standing directors could compromise independence and objectivity, despite their “institutional knowledge“. Others have criticized long-tenured directors with leading to a lack of opportunity for new and/or more diverse BoD candidates.

boards Composition

Board Composition

In fact, one well-known large investor now screens firms on director tenure when considering votes for or against directors. Of note, more than one-third of all companies have an average tenure of non-management directors of between five and seven years. Small caps ted to have longer tenures, with 29% having an average tenure of 11 years or longer.  A similar trend can be seen for financial services firms, with 40% having an average tenure of 11 years or longer. An astonishing 61% of firms noted their longest-tenured director has been on the BoD for at least 13 years.

Board Composition

Board Composition

H/T Stanford Corporate Governance