S&P 500 companies continuing to improve board diversity, 2021 Spencer Stuart U.S. Board Index Finds

Data through May 2021 shows that 72% of new independent directors are women or men from historically underrepresented racial and ethnic groups

30% of all S&P 500 directors are women, a new milestone

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Spencer Stuart

Oct 19, 2021, 08:00 ET

NEW YORK, Oct. 19, 2021 /PRNewswire/ -- S&P 500 boards appointed 456 new independent directors in the 2021 proxy year, the most since 2004. Of that number, 72% were women or men from historically underrepresented racial and ethnic groups, up from 59% last year, according to a new study by Spencer Stuart, one of the world's leading executive search and leadership advisory firms.

The 2021 U.S. Spencer Stuart Board Index found that companies are heeding calls from shareholders and other stakeholders for increased boardroom diversity, including gender, age, race/ethnicity and professional background. However, while a majority of new directors are from historically underrepresented groups, changes to overall board composition are happening slowly due to persistently low boardroom turnover. New directors represent only 9% of all S&P 500 directors, consistent with prior years.

"Boards focused on increasing diversity in 2021, adding more women and directors from historically underrepresented ethnic and racial groups. Many boards expanded their size in order to achieve greater diversity," said Julie Hembrock Daum, who leads Spencer Stuart's North American Board Practice. "The focus on this is likely to continue, but boards can't always increase in size to bring on needed skills or backgrounds. The most effective boards will embrace a refreshment mindset to ensure they have the right expertise in the boardroom."

The Spencer Stuart Board Index reflects data up until May 13, 2021, the most up-to-date analysis available in the market. The top findings include:

This has been a landmark year for increasing racial and ethnic diversity. A record-breaking 47% of new independent directors are Black/African American, Asian or Hispanic/Latino/a, compared with 22% last year and 14% a decade ago.

Progress is mixed for women. According to this year's Index, women now represent 30% of all S&P 500 directors, the most ever. This is an increase from 28% last year and 16% a decade ago. However, the representation of women among new independent directors fell to 43% from 47% last year.

Boards are adding more and more non-CEO members. The lion's share (74%) of the incoming class of new board members comes from outside the ranks of CEO, chair/vice chair, president and COO. One-third (33%) of new S&P 500 directors are active and retired corporate executives, including functional line and division/subsidiary leaders, compared with 23% last year and 21% a decade ago.

CEOs limit their additional board activity. 60% of S&P 500 CEOs do not serve on a public corporate board in addition to their own board, compared with 58% last year and 54% 10 years ago.

Annual director elections and individual director evaluations are on the rise. Today, 90% of boards have one-year terms, compared with 76% in 2011. 47% of boards disclose that they have some form of individual director evaluations, an increase from 44% last year and 34% a decade ago.

Board compensation increased modestly in 2021. The average total pay for non-employee directors of S&P 500 companies (including independent chair compensation) rose 1% to $312,279.

Low turnover rates may persist if boards rely on mandatory retirement policies. The number of S&P 500 boards disclosing a mandatory retirement age for directors has declined modestly during the past 10 years — to 70% today from 73% in 2011 — the retirement ages of boards with these policies continue to rise. Half (51%) of boards with age limits have a mandatory retirement age of 75 or older, compared with 48% last year and 20% a decade ago.

"Boards with a refreshment mindset will adopt intentional and ongoing processes for evaluating needed expertise and the contributions of directors, reducing reliance on mechanisms such as mandatory retirement or term limits to encourage turnover. This approach also aligns boards with investors, who expect boards to regularly evolve their skill sets based on the forward-looking strategy," said Daum.

The findings included in the 2021 U.S. Spencer Stuart Board Index are based on the S&P 500 as of May 13, 2021 and proxy statements filed between May 28, 2020 and May 13, 2021.

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 70 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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