Paul Hastings: Breaking The Glass Ceiling: Women In The Boardroom

Paul HastingsWhile there is no longer much debate over the value of diversity on corporate boards, real change continues to be elusive—even as studies have provided empirical evidence that gender diversity can be a catalyst for a board’s success.

 

  HastingreportcoverThe issue of gender inequality is multifaceted, without one clear roadmap to progress. Paul Hastings’ ongoing series, Breaking the Glass Ceiling: Women in the Boardroom, takes a closer look at the initiatives and movement underway in countries around the world to help close the gender gap on corporate boards. It is our hope that, by continued dialogue and an examination of global initiatives that have spurred progress, we can bring to light strategies that are making a difference and helping to drive change.

Executive Summary

 Gender parity in the boardroom is a challenging, complex issue—one that inspires, and seems to require, a variety of approaches from those seeking progress. In our ongoing series, Breaking the Glass Ceiling: Women in the Boardroom, we take a close look at the initiatives and movement underway in countries around the world to help close the gender gap on corporate boards. Through examination of the strategies that are helping to drive change, we aim to foster further dialogue around this important issue.

In this Report Card on the United States, we review recent developments in the U.S. focused on initiatives to advance diversity writ large—not just gender diversity—on corporate boards led by four critical groups: lawmakers at the federal, state, and local levels; federal agencies, such as the Securities and Exchange Commission (SEC); institutional investors; and interest groups and industry organizations working on this issue. Our full report, available online at www.paulhastings.com/genderparity, includes developments from more than 40 jurisdictions around the world. We encourage you to share your thoughts and help continue the conversation.

Our Findings

While there is no longer much debate over the value of diversity on corporate boards, real change continues to be elusive—even as studies have provided empirical evidence that gender diversity can be a catalyst for a board’s success. For instance, a recent McKinsey & Company report identified “a statistically significant relationship between a more diverse leadership and better financial performance.”1 Specifically, “[t]he companies in the top quartile of gender diversity were 15 percent more likely to have financial returns that were above their national industry median. Companies in the top quartile of racial/ethnic diversity were 30 percent more likely to have financial returns above their national industry median.”2

However, while the issue continues to generate much discussion, there still seems to be a limited appetite to set clear directives or move beyond voluntary approaches. While some advances have been made, progress remains modest.

Federal Efforts Stall, But States and Cities See Progress

Two initiatives supporting gender parity on corporate boards have been introduced in the U.S. House of Representatives. The Gender Diversity in Corporate Leadership Act would strengthen diversity disclosure requirements and bolster the SEC’s role in encouraging gender diversity. In addition, a resolution was introduced that would express the sense that “corporations should commit to utilizing the benefits of gender diversity in boards of directors and other senior management positions.” Although these initiatives have sponsors from both sides of the aisle, they remain in committee, with no hearings or further action scheduled.

Legislative efforts at the state level have proven more successful, though they involve only voluntary guidelines. In 2013, California passed a resolution encouraging publicly traded corporations in the state to reach certain percentages of women on their boards by 2016. A similar resolution was also filed in the Illinois House of Representatives in 2015. In Massachusetts, a resolution encouraging greater gender diversity in the leadership of companies and state government was passed unanimously by the state legislature. Turning to local government, New York City and Philadelphia each have taken steps to increase diversity disclosures by city contractors.

SEC Seeks Stronger Disclosure Requirements

In recent years, the SEC has made efforts to improve the diversity of corporate boards—most notably in 2009, when the SEC amended its regulations to require disclosure of a company’s consideration of diversity when identifying nominees for board member positions. It is now trying to strengthen this requirement. SEC Chair Mary Jo White recently announced that her staff is preparing a recommendation to propose amending the relevant rule to require more robust board diversity disclosures.

Another federal agency, the Government Accountability Office (GAO), released an insightful report describing the lack of gender diversity within corporate boards.The report also outlines steps companies could take to address the issue—such as requiring that their slates of director candidates include at least one woman, or expanding their board searches beyond CEOs to include high-performing women in other senior executive level positions. These recommendations may help to spur further progress.

Institutional Investors Wield Influence

While mandatory policies on board diversity continue to attract only limited support, institutional investors have taken a more prominent role by using their financial influence to focus corporate efforts on increasing board diversity. Both public and private institutional actors have employed a number of tactics to urge publicly traded companies to take action. These include public statements of support for more diverse boards, support for shareholder resolutions encouraging companies to adopt formal diversity policies, threats to engage in or actual no-vote campaigns against directors on boards that have refused to respond to demands for increased diversity, and campaigns for proxy access to allow shareholders to directly nominate corporate directors.

Interest Groups Spur Additional Momentum

A number of other organizations are also involved in driving efforts to increase board diversity. These initiatives range from conducting research, to creating voluntary codes of conduct and best practices, to taking action by partnering with those involved in identifying board candidates or mentoring women senior executives. For instance, Catalyst focuses on increasing boardroom diversity by producing research and conducting programs in which current CEOs and board chairs mentor and sponsor CEO-endorsed women board candidates. The 30% Club likewise has established a mentoring program, and works with executive search firms to encourage them to put forward diverse slates of candidates.

Notably, the Thirty Percent Coalition issued a strong call to action in 2012, sending letters to 168 companies urging them to increase representation of women on their boards. By late 2015, 62 of the companies had appointed women.

Conclusion

With each edition of our report, we see a growing array of strategies and approaches being used to address the issue of gender parity on corporate boards. Clearly, there is interest from both the public and private sectors in establishing a strong pipeline of future women directors. While change continues to be modest in the U.S., the efforts of legislators, federal agencies, institutional investors, and others are laying the groundwork so that meaningful progress may be realized in the years ahead.

While it will take more time to determine the full impact of the efforts described in this report, we hope that our study will advance the conversation, inspire new ideas and approaches, and help us collectively close the distance between where we are today and where we hope to be in the future.

Tara K. Giunta, Partner
Editor in Chief

Stefanee Handon, Associate
Assistant Editor

Kristin Starr, Associate
Casey Miller, Associate
Kristin Teager, Associate
Contributing Authors

  1. McKinsey “Diversity Matters” report, Nov. 24, 2014, page 1, available at https://web.duke.edu/equity/toolkit/documents/DiversityMatters.pdf.
  2. Id.

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