March 14, 2016
In today’s corporate world, boardroom diversity is top of mind for governance professionals and investors alike. Shareholder engagement and activism has pressured companies to evaluate their directors for a breadth of demographics including gender, ethnicity, skillset, experience and independence.
Categorically, director affiliation is defined three different ways: insiders, outsiders and affiliates. An inside director is an employee of the company, outside directors have no material relationship with the company and affiliate directors have a material relationship to the company. An affiliate’s material relationship can include employment at the company within the last three years, a familial relationship with an executive officer at the company or other circumstances that constitute a conflict of interest.
Since the debut of Say on Pay in 2011, companies have shifted to favor independent directors. In 2010, 82.9% of S&P 500 directors were outsiders, which has increased to 85.4% in 2014—representing a net gain of 303 outside directors in that time frame. The percentage of insider directors in the S&P 500 fell from 12.3% of the index in 2011 to 11.2% in 2014, while the percentage of affiliate directors declined from 4.8% to 3.5% in the same time frame.
There is more here than meets the eye, and the rise in independent directors is highly attributed to the increase of female board members at S&P 500 companies, who are predominantly independent. In fact, consistently over the past five years, more than 95% of female directors neither worked at the company for which they were a director nor were they affiliated with it in any other way.
Meanwhile, we have seen a significant number of females added to boards overall, while the number of males has actually decreased. In total, there were 4,337 male directors in 2010 compared 810 female directors. In 2014, the number of female directors increased 31.3% to 1,064, while the number of male directors decreased slightly to 4,311. While there has been an increase in the number of male independent directors—62 more than 2010—the count of independent female directors grew by 241 in that time frame.
This data set tells us that there are very few insider women who make it to the boardroom—34 in total in 2014—which pokes holes in the concept that there are not enough qualified women available for board service, given what a small percentage of currently serving female executives that represents. But that’s a story for another day and time.
These shifting trends of gender and affiliation could reflect a shareholder desire to increase diversity and reduce potential conflicts of interest, knowing that directors make crucial decisions that affect their company’s outlook and performance. As shareholder engagement and activism become the norm, companies will need to ensure that the composition of their boards encourages a diversity of mindset and background that instills confidence in investors in a competitive marketplace.
The data in this report is powered by Equilar BoardEdge which not only includes information on 140,000 directors and executives qualified for board service, but also more than a dozen categories about each board member’s background and leadership experience. The platform’s defining feature is a networking tool that clearly displays how board members are connected to each other.
For more information on BoardEdge, or to request a demo, click here.
For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at email@example.com. Hannah Dumas, research analyst, contributed to this post.