Diversity, equity, inclusion: One year later has been saved
Diversity, equity, inclusion: One year later
Board Practices Quarterly, December 2021
By Natalie Cooper, Bob Lamm, and Randi Val Morrison
This Board Practices Quarterly revisits topics raised in our inaugural issue, published in September 2020, that explored how companies and boards were responding to events of that year surrounding systemic racism and racial inequality. Specifically, we explore how practices pertaining to diversity, equity, and inclusion (DEI) have changed in the past year in areas such as reporting, meeting agendas, and actions taken by the company, management, and/or the board. We also review additional topics related to DEI, including board recruitment, board education, and executive compensation incentives.
Our findings are based on an October 2021 survey of Society for Corporate Governance members representing more than 120 public companies. As anticipated in our inaugural issue, the findings in this area have evolved over the past year, and we expect ongoing change in corporate governance practices, as well as on a societal level, amid increasing calls for action and progress.
Respondents, primarily corporate secretaries, in-house counsel, and other in-house governance professionals, represent public companies of varying sizes and industries.1 The actual number of responses for each question is provided. Where applicable, commentary has been included to highlight differences among respondent demographics. In some cases, additional commentary is provided to highlight comparisons to public company results of similar questions asked in our 2020 inaugural Board Practices Quarterly survey and in our 2018 Board Practices Report.
What information does management provide to the board on company practices, strategy, and performance related to diversity, equity, and inclusion? Select all that apply. (118 responses)
Compared to our 2020 survey results, all market caps reported more information being provided to the board on diversity and inclusion strategy and related progress. In 2021, 88% of public companies provided such information, versus 64% in 2020. In 2021, just 3% reported providing no DEI information to the board (representing 13% small-caps and 3% mid-caps), compared to 12% in 2020.
If your board is looking to increase diversity, where does it look for recruitment? Select all that apply. (90 responses)
Large- and mid-caps primarily seek referrals from board members as well as from search firms, whereas small-caps primarily look to board members and management. Referrals from organizations focused on board diversity (exclusive of search firms) varied across market caps: 16% large-cap, 26% mid-cap, and 43% small-cap.
A similar question asked in our 2018 Board Practices Report revealed similar responses, in which referrals from board members and from search firms were the most common responses by a significant margin, at 77% and 73%, respectively. Referrals from organizations focused on board diversity (exclusive of search firms) was not among the answer choices in 2018, but it will be interesting to see how this source of recruitment evolves given the increasing number of such organizations.
Has your company included one or more DEI metrics in its executive incentive plans? Select all that apply. (92 responses)
Although most respondents (65%) reported their company has not included one or more DEI metrics in its executive incentive plans, more than 40% say they are considering it.
Among large-cap respondents, 25% report that their executive incentive plans include at least one qualitative DEI metric; this is 16% for mid-caps. Inclusion of quantitative DEI metrics is 17% and 8% for large- and mid-caps, respectively. Where such metrics are included, they most commonly appear in short-term incentive plans. 31% of large- and 51% of mid-caps do not include these but are considering doing so.
Among small-caps, none reported having DEI metrics included in their incentive plans; 29% are considering doing so, and 57% reported this is not currently under consideration.
1 Public company respondent market capitalization as of December 2020: 42% large-cap (which includes mega- and large-cap) (> $10 billion); 52% mid-cap ($2 billion to $10 billion); and 6% small-cap (includes small-, micro-, and nano-cap) (<$2 billion). Respondent industry breakdown: 32% energy, resources, and industrials; 27% consumer; 25% financial services; 10% technology, media, and telecommunications; and 5% life sciences and health care.
Throughout this report, in some cases, percentages may not total 100 due to rounding and/or a question that allowed respondents to select multiple choices.
As published by National Association for Corporate Directors, NACD NXT site
Missing pieces report: The 2018 board diversity census of women and minorities on Fortune 500 boards
Fortune 500 boards with over 40 percent diversity doubled since 2012