Fascinating trends are afoot in corporate boardrooms, according to data compiled by The Conference Board and its partners, including us at the University of Delaware’s Weinberg Center for Corporate Governance and collaborators from KPMG, Russell Reynolds, and ESGAUGE.
Our new report documents record-high demographic diversity (racial and ethnic) in boardrooms, which has now plateaued, along with a continuing rise in substantive diversity (professional background).
The report also finds intriguing trends in the demands on boards, from workloads and assessments to the use of committees, including a decline in resources devoted to ESG as uncertainty rises about that movement’s continued potency.[1]
To summarize the report under two headings:
Diversifying Diversity: From Demographic to Substantive
- Record levels of demographic diversity (i.e., racial and gender) in board composition.
- Trends in demographic diversity are slowing while trends in substantive diversity are accelerating (e.g., the percentage of directors from CEO ranks – with skills in strategy and leadership – is falling in favor of executives with other backgrounds such as corporate governance, HR, and international).
These trends may be related to each other as different forms of diversity are sought or as diversity levels converge to reflect the general population.
Demanding Dynamics: Workloads, Assessments, Committees
- Limits on multiple-board service are growing, reflecting the policies of certain powerful asset managers, the prescriptions of proxy advisers, and perhaps more emphasis on time management and demands.
- Board excellence practices are evolving, with some larger companies sponsoring education and evaluation.
- Only a few companies have established a designated sustainability or environmental, social, and governance (ESG) committee, as many have allocated ESG responsibilities to existing committees, and some boards are uncertain of the long-term trajectory of ESG-related initiatives.
Demographic Diversity
Gender and racial diversity on U.S. corporate boards reached record highs in 2024, which reflects years of conscious effort to add demographic diversity on boards. However, the proportion of new directors who are women or of color has begun declining.
The share of female directors hit record levels, rising from 2020 to 2024 from 27 percent to 34 percent among S&P and from 21 percent to 29 percent in the Russell. During that period, female chairs rose from 4 percent to 11 percent (S&P) and 5 percent to 8 percent (Russell) as the percentage of lead independent directors who are female rose from 11 percent to 22 percent (S&P) and 9 percent to 17 percent (Russell).
Since 2020, the percentage of new female directors has been stable, between 38 percent and 41 percent in both the Russell and S&P. Among women of color, new appointments peaked in 2022, then declined, which the report attributed either to a gradual alignment with the broader workforce or to less priority given to this demographic niche.
Since 2020, the proportion of non-white directors in the S&P increased from 20 percent to 26 percent and in the Russell from 21 percent to 23 percent. During the same period, non-white board chairs rose from 8 percent to 12 percent (S&P) and 8 percent to 12 percent (Russell) as the percentage of lead independent directors who are non-white rose from 9 percent to 13 percent on the S&P (having peaked in 2022 at 15 percent) and ran steady at 11 percent on the Russell. Among new directors on both indexes, the directors of color fell from historic highs of nearly 50 percent in 2022 to 31 percent this year.
The report attributes such trends to a combination of “a natural slowdown as board representation approaches alignment with working-age demographics” and “waning of momentum in corporate diversity initiatives amid heightened political and social scrutiny.” Another factor may be a related trend the Report documents: an increase in substantive diversity on boards.
Substantive Diversity
If boards have become highly diverse, measured by demographic features, they are also beginning to become more diverse substantively, measured by functional backgrounds. Directors with executive backgrounds are increasingly those with experience in areas other than strategy and leadership.
From 2020 to today among the Russell 3000, the percentage of directors with non-CEO executive backgrounds increased from 14 percent to 18 percent, and the percentage drawn from below the C-suite rose from 17 percent to 21 percent. At the same time, the percentage of directors who are active or former CEOs has slightly declined.
The percentage of directors with a strategic background remains high, although it declined between 2020 and today from 61 percent to 55 percent (S&P) and 59 percent to 53 percent (Russell). But the portion with many other backgrounds is also rising, including increases from 2020 in:
- international from 41 percent to 52 percent (S&P) and 23 percent to 29 percent (Russell)
- corporate governance from 30 percent to 41 percent (S&P) and 22 percent to 31 percent (Russell)
- human resources from 23 percent to 38 percent (S&P) and 14 percent to 26 percent (Russell)
The number of directors with backgrounds in technology and cybersecurity and other substantive topics have also been increasing, all of which reflects the rising recognition of the importance of substantive diversity.
Multiple Boards
The proportion of companies with formal policies on multiple-board service has increased, most commonly limiting directors from serving on more than three other boards. The increase in such policies likely reflects heightened investor engagement and pressure from dominant proxy advisers.
The adoption of board service limits has increased in the S&P, from 68 percent in 2020 to 81 percent in 2024 and in the Russell from 44 percent to 53 percent during the same period. These trends likely reflect how, as public company board service has become more complex, institutional investors and proxy advisers have sharpened focus on directors who serve on a perceived excessive number of boards. The report provides these policy examples:
- Black Rock: Limits nonexecutive directors to serving on a maximum of four public company boards, and executives to two.
- Vanguard: Requires companies to adopt and enforce board-service limits without specifying a single, rigid rule.
- Fidelity: Votes against directors serving on more than five public company boards.
- State Street: Nonexecutive board chairs or lead independent directors are restricted to three boards; other nonexecutive directors may serve on up to four.
- ISS: Advises voting against directors who serve on more than five public company boards and for CEOs opposes serving on more than two external boards.
- Glass Lewis: Advises voting against executives serving on more than one external board and nonexecutive directors holding more than five board positions.
The most common cap appears to be three, the policy in effect at 65 percent of S&P companies with board service limits and 52 percent of Russell companies. Four is the cap at another 29 percent of S&P companies and 37 percent of Russell companies.
Training and Assessment
While virtually all companies conduct director orientation and education programs internally, a minority of mostly larger companies outsource portions of this function. Board performance assessments have been broadening in scope, some even reaching to individual directors, and some companies are using third-party facilitators in the exercise.
Both S&P and Russell companies predominantly use in-house programs for director orientation and education, with 63 percent of companies in each index organizing their own programs in 2024. Meanwhile, the use of a combination of in-house and external resources is on the rise in both indexes, and S&P companies are more inclined to adopt this approach, with 36 percent doing so in 2024 compared with just 23 percent of Russell companies. However, fewer than 1 percent of firms in both indexes fully outsource these responsibilities.
Incorporating individual director evaluations into annual board self-assessments is a prevalent practice among larger companies, with 55 percent of S&P firms disclosing a combination of full board, committee, and individual evaluations in 2024. In contrast, a majority (59 percent) of Russell companies still focus solely on full board and committee evaluations.
Both Russell and S&P companies have seen a steady increase in the use of independent assessment facilitators for board evaluations; however, the S&P leads significantly, with 38 percent of companies employing these facilitators in 2024, up from 21 percent in 2020, compared with 17 percent in the Russell, up from 10 percent.
Committees
The overwhelming majority of boards do not have a dedicated ESG or sustainability committee, putting related responsibilities in longstanding committees such as audit. The low prevalence of dedicated committees in this area may reflect continued uncertainty about the future of ESG in light of heavy scrutiny of the movement and related backlash.
After the traditional audit, compensation, and nominating/governance committees required by most stock exchange listing standards, the most common standing committee of the board continues to be the executive committee. In the S&P, 32 percent of companies have such a committee, and 16 percent of Russell companies do.
Other common board committees are the finance committee (26 percent of S&P and 9 percent of Russell companies), science and technology committee (15 percent of S&P and 9 percent of Russell companies), and risk committee (13 percent of S&P and 12 percent of Russell companies). Only 3 percent of S&P and 4 percent of Russell companies have established a sustainability or ESG committee.
Conclusion
These datapoints illuminate the fading and shifting of the ESG movement as it slows and as political leaders across America deprioritize DEI. The tally suggests that the movement drove significant increases in demographic diversity on corporate boards and increased substantive diversity as well. The data on boardroom dynamics likewise reflects both the waning of these movements and the continuing importance of other governance trends, especially towards focus and assessment. Above all, the data support a prediction of continued change ahead.
ENDNOTE
[1] The report draws on a proprietary database as of October 23, 2024, reflecting practices in place as of the most recent SEC filings or corporate documents (including 2024 proxy statements, Forms 8-K and 10-K, committee charters, etc.). It focuses on companies in the S&P 500 and Russell 3000, which are referred to for convenience below as the S&P and Russell, respectively.
This post comes to us from Lawrence A. Cunningham, director of the University of Delaware’s Weinberg Center for Corporate Governance and professor emeritus at George Washington University.