S&P 500 companies continuing to improve board diversity, 2020 Spencer Stuart U.S. Board Index Finds

NEW YORK, Dec. 16, 2020 /PRNewswire/ -- S&P 500 boards appointed 413 new independent directors in the 2020 proxy year. Of that number, 59% were women and minority men, tying the 2019 record for most diverse new independent directors, according to a new study by Spencer Stuart, one of the world's leading executive search and leadership advisory firms.

The 2020 U.S. Spencer Stuart Board Index found that companies are listening to calls from shareholders and other stakeholders for increased diversity in their boardrooms, from gender to age, race/ethnicity, and professional background. While a majority of new directors are women and minority men, changes to overall board composition is happening slowly due to persistently low boardroom turnover. New directors represent only 8% of all S&P 500 directors, consistent with prior years.

"Board composition is being scrutinized as never before, as investors and other stakeholders press boards to ensure director qualifications align with company strategy and increase the diversity of perspectives around the board table," said Julie Hembrock Daum, who leads Spencer Stuart's North American Board Practice. "Boards that embrace regular change are in the best position to have the skills and expertise for the company's forward-looking challenges, opportunities and strategies."

Female representation hits two new milestones

According to this year's Index, all boards have at least one woman for the first time since Spencer Stuart began tracking this data in 1998. Among the incoming class of S&P 500 directors, 47% are women, also the highest since Spencer Stuart began tracking. Overall, representation of women on boards is increasing, including 28% of all S&P 500 directors in 2020, up from 26% last year. 

Diversity among boards plateaued but companies remain committed to hiring

Representation of minority directors did not change significantly in 2020. Twenty-two percent of new S&P 500 directors are minorities (defined as Black/African American, Hispanic/Latinx or Asian), down from 23% last year. Minority women represent 10% of the incoming class, consistent with last year, and minority men represent 12% of the new directors, a slight decrease from 13% last year. Of the top S&P 200 companies, minorities represent 20% of all directors, up from 19% last year.

Despite the small tick down in minority representation, one-quarter (24%) of S&P 500 companies report having a commitment to recruiting from a diverse slate of candidates when considering new directors.

Boards are seeing more and more non-CEO members

The lion's share (64%) of the incoming class of new board members comes from outside the ranks of CEO, chair/vice chair, president, and COO. The most common profiles are CFOs and other financial executives (27% of new directors) or division/subsidiary heads or top executives of functional units (23% of new directors).

Women and minority men tend to have different backgrounds than the traditional director profile. Only 17% of the women and minority men joining S&P 500 boards are current or former CEOs, compared to 46% of other directors. Just 5% of the non-minority men of the incoming class are current or former line or functional leaders, compared to 23% of the women and minority directors. Just under one-third (32%) of new women or minority men directors are first-timers, versus 18% of non-minority directors.

Board compensation increased in 2020

One reason retention remains high might be compensation, which is on the rise. The average total pay for non-employee directors of S&P 500 companies (excluding independent chair compensation) is around $308,000. The four sectors with the highest average director compensation are healthcare, technology, communications services, and energy.

Low turnover rates are likely to persist

Mandatory retirement policies are in place at 70% of S&P 500 boards, and these policies impact turnover. However, a small percentage of sitting independent directors are approaching retirement age. Only 16% of the independent directors on boards with age caps are within three years of mandatory retirement. With independent directors averaging 63 years of age, most S&P 500 directors have years of potential service before reaching mandatory retirement.

More than three-quarters (77%) of the 425 independent directors who left S&P 500 boards in the past year served on boards with mandatory retirement ages. More than half — 54% — retired at 70 or older, and 37% served on the board for 15 or more years.

"Looking ahead to next year, it will be difficult for boards to make meaningful progress in improving diversity unless they embrace more frequent turnover. It should be noted that year over year, we find that companies with new, independent directors and more significant diversity in the boardroom benefit from a business performance standpoint, as well," Ms. Daum explained.

The findings included in the 2020 U.S. Spencer Stuart Board Index are based on the S&P 500 as of May 20, 2020.

About Spencer Stuart

At Spencer Stuart, we know how much leadership matters. We are trusted by organizations around the world to help them make the senior-level leadership decisions that have a lasting impact on their enterprises. Through our executive search, board and leadership advisory services, we help build and enhance high-performing teams for select clients ranging from major multinationals to emerging companies to nonprofit institutions.

Privately held since 1956, we focus on delivering knowledge, insight and results through the collaborative efforts of a team of experts -- now spanning 56 offices, 30 countries and more than 50 practice specialties. Boards and leaders consistently turn to Spencer Stuart to help address their evolving leadership needs in areas such as senior-level executive search, board recruitment, board effectiveness, succession planning, in-depth senior management assessment and many other facets of organizational effectiveness. For more information on Spencer Stuart, please visit www.spencerstuart.com.

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