Gender Diversity on the Board: The US Falls Further Behind (And Why We Need Shareholder Access) (Part 5)

The government sponsored study had issued a number of recommendations designed to improve gender diversity on the boards of listed companies.  Mostly the recommendations call for public pressure.  The recommendations include: 

1. A public commitment from the boards of the largest companies to increase the number of women to 25% by 2015 and to announce the aspirational goals within six months;
2. Changes to the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity; ,
3. A call for greater pressure from investors, particularly that they consider diversity when "considering . . . appointments to the board." 
4. A broader search process for board candidates, including a commitment from executive search firms to address diversity and a willingness to expand the pool of candidates. 

The approach, therefore, seems to center on a public commitment by large companies and investor pressure to make certain that they adhere to their commitments.  Moreover, it is a position promoted by the government.  The result will likely be some increase in women on the boards of British companies.  Moreover, once a critical mass is seated, these women directors will have connections and acquaintances that can be used to locate additional women candidates.

What is happening on this issue in the United States?  The US is falling behind.  As the report described:

• under the Dodd-Frank Act Diversity Offices will implement rules to ensure the fair inclusion and utilisation of minorities and women in all firms that do business with government agencies. The US Securities and Exchange Commission introduced a new code in December 2009, requiring the disclosure of how board nomination committees consider diversity in selecting candidates for board positions.

But the Diversity Office at the Commission is on hold and the diversity disclosure requirements have not produced adequate results, as Commissioner Aguilar has noted. 

As Britain and continental Europe increase the number of women, perhaps US companies will find out whether there is a role for the market in the matter.  To the extent that more women make for better boards, the competitive position of US companies will suffer.

There is, however, some hope.  The best chances for board diversity in the US is actually something not mentioned by the study sponsored by the British government.  Shareholder access -- the rule that was stayed by the Commission and is currently being litigated in the DC Circuit -- provides a mechanism for circumventing the board nomination process.  No longer limited to friends and acquaintances of the existing board, shareholders nominating candidates will be able to select from a broader field.  It will likely involve more women and more people of color.