Boards Should Use Diversity as a Defense Against Activists

Many institutional investors have made increasing the diversity of corporate boards a priority, yet activist investors that rely on the support of these institutional investors often make boards less diverse. Boards should take advantage of this divergence between the priorities of institutional investors and the actions of activist investors in resisting activist campaigns, and prepare for those campaigns by increasing board diversity.

Activists’ Effect on Board Diversity

The financial press has highlighted how activists reduce board diversity, [1] and a recent white paper by ISS and the Investor Responsibility Research Center Institute (“IRRCi”) has provided proof.[2] The ISS and IRRCi study analyzed 380 directors appointed between 2011 and 2015 at 89 S&P 1500 companies.[3] These directors were either appointed by activist investors under terms of a settlement or added by incumbent directors in connection with shareholder activism.[4] Gender diversity among these directors was low: only 32 of the 380 directors (8.4 percent) were women,[5] compared with a paltry 26.9 percent of new directors at all S&P 500 corporations in 2015.[6] Importantly, just three activist shareholders—Starboard Value, Engaged Capital, and the Clinton Group—appointed women on multiple occasions, and they accounted for 16 of the 21 directors directly appointed by activist investors.[7]

The racial diversity of these directors was even lower. Of the 351 directors with published racial or ethnic information, only 16 (4.6 percent) were people of color,[8] and only one director was a woman of color (0.28 percent).[9] Only six firms chose the 10 minority directors directly appointed by activists, and only two—Starboard Value and Icahn Group—selected minority directors more than once.[10] Unfortunately, there were no data on other important measures of diversity, such as the number of LGBT directors appointed.

Most important but unsurprising, activist investors make boards less diverse. To isolate the effect of activism on board diversity, the study compared the diversity of each company’s board a year prior to an activist campaign with its diversity a year after the campaign.  The percentage of studied companies with an all-male board increased from 12.9 percent a year prior to an activist campaign to 17.2 percent a year after activism, while the broader S&P 1500 saw all-male boards decrease from 23 percent in 2011 to 17.3 percent in 2015.[11] Similarly, the percentage of all-white boards of studied companies increased from 44.1 percent a year prior to activism to 48.4 percent a year after activism, while the number of all-white boards in the S&P 1500 decreased from 46.5 percent in 2011 to 43.2 percent in 2015.

These statistics demonstrate that activist investors generally nominate more male and white directors than do directors appointed outside of the activist context. Moreover, a small number of activists account for the few diverse board candidates.

Board Diversity and Institutional Investors

Many institutional investors support increased board diversity.[12] For example, BlackRock explained in its engagement priorities for 2017-2018 that:

We will engage companies to better understand their progress on improving gender balance in the boardroom. Diverse boards, including but not limited to diversity of expertise, experience, age, race and gender, make better decisions. If there is no progress within a reasonable time frame, we will hold nominating and/or governance committees accountable for an apparent lack of commitment to board effectiveness.[13]

Similarly, State Street Global Advisors released guidance in March 2017 about increasing gender diversity on boards.[14] The leaders of JPMorgan Chase Asset Management, BlackRock, Vanguard, State Street Global Advisors, T. Rowe Price, Canada Pension Plant Investment Board, and ValueAct Capital (among others) signed a document titled “Commonsense Principles of Corporate Governance” that stated, “Directors should have complementary and diverse skill sets, backgrounds and experiences. Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool,” and stated in an accompanying letter, “Diverse boards make better decisions, so every board should have members with complementary and diverse skills, backgrounds, and experiences.”[15] Recently, New York City Comptroller Scott Stringer, who oversees the city’s $180 billion pension funds, announced a new campaign to pressure 151 U.S. companies to make their boards more diverse.[16]

Both ISS and Glass Lewis include language supporting board diversity in their proxy guidelines.[17] The fact that ISS created the white paper discussed in this post and highlighted the fact that activism erodes gender, racial, and ethnic diversity on boards suggests that ISS may consider the effect of activist director nominees on board diversity when making its voting recommendations.[18]

Board Diversity and Defense

Commentators have noted that activist investors attempt to drive a wedge between the company and its shareholders or between management and the board.[19] Boards should use activist investors’ preference for white, male director candidates to drive a wedge between them and institutional investors.

Board diversity helps promote social justice[20] by ensuring that corporate leaders reflect the diversity of all corporate constituencies and the wider society. In addition, more diverse boards perform better financially and are less likely to be involved with bad governance or even bribery or fraud.[21] Using board diversity as a hostile defense tactic adds another reason to diversify boards. By preemptively increasing the diversity of its board, a corporation increases the likelihood that an activist investor will attempt to replace board members with less diverse candidates. Moreover, the value of board diversity as a defense gives incumbent boards an incentive to increase diversity beyond a few seats.[22] The more diverse a board, the more effective the defense. A board that commits to improving its diversity and consistently articulates the benefit of this diversity to its shareholders could credibly argue that an activist investor will hurt the corporation and its long-term prospects by make the board less diverse.

Institutional shareholders would have to decide whether to oppose the less-diverse activist directors. One consideration would be that strong support for board diversity can bring tremendous public relations benefits, as some institutional investors like State Street have shown.[23] Corporations with these institutional investors as shareholders would be smart to argue publicly and perhaps in the news media in favor of protecting their boards’ diversity.

Admittedly, using board diversity as a form of corporate defense is easy to counter—activists could simply nominate more diverse candidates.  This would still lead the desired outcome of more diverse board and therefore is still a positive outcome that would strengthen the overall corporate landscape and corporate governance. Until it happens, though, corporate boards should use their diversity as a shield, and corporations and institutional investors should punish activist investors for reducing board diversity.


[1] See, e.g., Activists from Icahn to Loeb Overlook Women for Board Posts, Bloomberg News (Mar. 8, 2016),

[2] Andrew Borek, Zachary Friesner & Patrick McGurn, Institutional Shareholder Services & The Investor Responsibility Research Center Institute, The Impact of Shareholder Activism on Board Refreshment Trends at S&P1500 Firms (2017),

[3] Borek et al., supra note 2, at 5, 11–12.

[4] Id. at 12.

[5] Id. at 16.

[6] 2015 Catalyst Census: Women and Men Board Directors, Catalyst (2016),

[7] Borek et al., supra note 2, at 17. Incumbent boards appointed the remaining 11 female directors. Id.

[8] Id. at 19.

[9] Id. at 17.

[10] Id. at 19.

[11] Id. at 40.

[12] See generally, Anthony Goodman & Rusty O’Kelley, Institutional Investors Lead Push for Gender-Diverse Boards, Harv. L. Sch. Forum Corp. Governance & Fin. Reg.  (Apr. 26, 2017),; David A. Katz & Laura A. McIntosh, Corporate Governance Update: Prioritizing Board Diversity, Harv. L. Sch. Forum Corp. Governance & Fin. Reg. (Jan. 30, 2017),

[13] BlackRock, Inc., Our Engagement Priorities for 2017-2018, (last visisted Aug. 29, 2017).

[14] State Street Global Advisors, SSGA’s Guidance on Enhancing Gender Diversity on Boards (Mar. 7, 2017),

[15] Commonsense Principles of Corporate Governance, Harv. L. Sch. Forum Corp. Governance & Fin. Reg. (Sept. 8, 2016),

[16] Press Release, Comptroller Stringer, NYC Pension Funds Launch National Boardroom Accountability Project Campaign – Version 2.0 (Sept. 8, 2017), Comptroller Stringer’s previous campaign to increase proxy access was incredibly successful, and commentators have questioned whether his board diversity campaign will have a similar impact. Cydney S. Posner, Cooley LLP, Will Board Diversity Be the New Proxy Access?, Lexology (Sept. 11, 2017),

[17] The ISS 2017 proxy voting guidelines stated that investors should generally vote for requests for reports on a corporation’s efforts to diversify its board, and the 2016 voting guidance stated that investors should vote for shareholder proposals to ask a company to take steps to nominate more women and minorities to the board. See ISS, United States Summary Proxy Voting Guidelines 61 (2017),; ISS, United States SRI Proxy Voting Guidelines 69 (2016),; Glass Lewis, 2017 Proxy Paper Guidelines: An Overview of the Glass Lewis Approach to Proxy Advice United States 12 (2017) (“Consistent with Glass Lewis’ philosophy that boards should have diverse backgrounds and members with a breadth and depth of relevant experience, we believe that nominating and governance committees should consider diversity when making director nominations within the context of each specific company and its industry.”).

[18] See Press Release, ISS, Activism at Public Companies Erodes Gender, Racial and Ethnic Diversity, but also Results in Younger, More Independent Boards (Aug. 24, 2017),

[19] See David A. Katz & Laura A. McIntosh, Corporate Governance Update: Preparing for and Responding to Shareholder Activism in 2017, Harv. L. Sch. Forum Corp. Governance & Fin. Reg. (Mar. 24, 2017),; Martin Lipton et al., Dealing with Activist Hedge Funds and Other Activist Investors, Harv. L. Sch. Forum Corp. Governance & Fin. Reg.,

[20] See, e.g., Thomas W. Joo, Race, Corporate Law, and Shareholder Value, 54 J. Legal Educ. 351, 359-64 (2004).

[21] See, e.g., Linda-Eling Lee et al., MSCI, Woman on Boards: Global Trends in Gender Diversity on Corporate Boards (2015),; Marcus Noland, Tyler Moran & Barbara Kotschwar, Is Gender Diversity Profitable? Evidence from a Global Survey (Peterson Inst. for Int’l Econ., Working Paper No. 16-3, 2016),; State Street Global Advisors, supra note 14, at 1; Vivian Hunt, Dennis Layton & Sara Prince, McKinsey, Why Diversity Matters (2015),

[22] For an analysis on the benefits of multiple diverse board members, see Vicki W. Kramer, Alison M. Konrad & Sumru Erkut, Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance (2006),

[23] See, e.g., Suzanne Vranica, ‘Fearless Girl’ Steals the Conversation, Wall St. J. (June 19, 2017, 5:30 A.M.),; Sapna Maheshwari, Statue of Girl Confronts Bull, Captivating Mahattanites and Social Media, N.Y. Times (Mar. 8, 2017),

George Tepe is a 2017 graduate of Columbia Law School, where he was the editor-in-chief of the Columbia Business Law Review. He would like to thank Chet Eckman and Chloe McKenzie for their editing and comments.