Board Diversity and SOX

Are Corporate Boards Diversifying?

We have noted on this Blog a few times the lack of diversity on boards of public companies and some of the responses to this, particularly overseas.  Celia Taylor, a professor at the University of Denver Sturm College of Law continues this discussion.

By Celia Taylor:

One anticipated outcome of Sarbanes-Oxley was an increase in ethnic, racial and gender diversity on corporate boards. The mandate for independent directors set forth in SOX and amplified by the listing standards of the exchanges led many to believe that nominating committees (and the search firms they employ) would have to look beyond the traditional networks of current corporate executives when recruiting board members and that such a broadened search would inevitably lead to the recruitment of more minorities.

To date, the data on whether this in fact has happened in inconclusive. At first blush, some recent numbers seem encouraging. A study by the recruiting firm Spencer Stuart shows that 33% of directors at the S&P 500 companies are CEOs and other high level officials, down from 53% in 2000.http://www.spencerstuart.com/about/media/34/ However, the new recruits are not coming from minority groups. ISS Governance Services reports that the percentage of S&P 500 companies with no minority directors at all went up from 36% to 41% between 2000 and 2007. One interpretation of these numbers is that while nominating committees are looking beyond their traditional sources for board nominees (i.e. not longer limiting their consideration to those already in the game), the new sources aren’t all that new. Instead of seeking truly diverse candidates, new recruits look remarkably like the old.