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Gender diversity and inclusion in US boardrooms: in the midst of an evolution

Posted: 22/01/2019


The shifting landscape for gender diversity and inclusion in the US is significantly influencing US investor and lawmaker behaviours. Be prepared for calls to demonstrate your company is taking gender diversity and inclusion seriously. 

In 2015, the United Nation’s General Assembly adopted the Sustainable Development Goals[1] (SDGs). After a slow start, the SDGs are now beginning to gain traction with larger US companies and we are seeing greater alignment of corporate sustainability initiatives with them.  We can expect this trend to continue, especially as initiatives like Business for 2030, which is being led by the US Chamber for International Business[2] gain more visibility. Among the SDGs is Goal 5, which aspires to “achieve gender equality and empower all women and girls” by 2030. To place Goal 5 in its global context, research conducted by McKinsey[3] indicates that the challenge of meeting this goal is huge. “About 195 million fewer adult women than men are literate. Around 190 million fewer women than men have a bank account. An estimated 36 million girls marry between the ages of 15 and 19, stunting their educational and economic potential. About 30 percent of women around the world have been victims of violence from an intimate partner.” Consider Goal 5 in the context of gender equality in the global workplace. McKinsey further reports that “Globally, women spend thrice the amount of time as men on unpaid care work - an economic contribution conservatively worth $10 trillion, or 13 percent of global GDP, for which they are not compensated or recognised. Turning to work that is paid and measured, women generate about 37 percent of the world’s GDP, despite being about half of the world’s total population.” 

Whilst McKinsey’s research is sobering, it also firmly establishes a compelling economic opportunity.  Gender diversity and inclusion matters not only socially and morally but also economically. This game-changing economic opportunity is materially influencing US investor and lawmakers’ behaviours. Large US institutional investors such as BlackRock are advocating for greater gender diversity on public company boards and are ramping up these efforts. BlackRock has publicly stated that it expects to see at least two women directors on every board, highlighting that it may vote against nominating/governance committee members if it believes that a public company has not accounted for diversity in its board composition. Due to the intense competition for talent, BlackRock views each company’s approach to human capital management (HCM) as an investment issue and a “factor in business continuity and success”. In this context, the EY Centre for Board Matters describes HCM as comprising a wide range of topics such as attracting, retaining, training and engaging the entire range of the workforce, the relationship of company culture to hiring and retention, and diversity and inclusiveness. In its compilation of investors’ top priorities for companies for 2018 (involving interviews with over 60 institutional investors with an aggregate of $32 trillion under management), EY identified HCM as one of investors’ top five priorities.

BlackRock is not the only large US institutional investor demanding more is done. StateStreet has advised that beginning in 2020 it will vote against the entire nominating committee of a public company that does not have at least one woman on its board, and has not engaged successfully with State Street for three consecutive years. State Street reported that by early March 2018 it had already voted against more than 500 companies for failure to show progress on board diversity.Further, the California Public Employees' Retirement System (CalPERS)[4] reports that it has engaged with 500 plus US companies in the Russell 3000[5] index regarding lack of board diversity to hold directors at these companies accountable for failure to improve diversity on their boards or diversity and inclusion disclosures. CalPERS reveals that by May 2018 it withheld votes or voted against 271 directors at 85 companies because of board diversity concerns while Equilar[6] states that the percentage of women on Russell 3000 boards increased during the second quarter of 2018, with 34.9 percent of new board seats going to women. According to Spencer Stuart[7], for the second consecutive year, women and minorities represented half of the class of new S&P 500 directors in 2018. 

In addition, the diversity and inclusion landscape for US public companies in preparation for the 2019 annual reporting and proxy season has changed.  In 2018, the proxy advisory firm, Institutional Shareholder Services Inc[8] (ISS) noted in its proxy reports where a company’s board has no female directors; however, ISS did not use the lack of gender diversity as a factor in its voting recommendations on directors. Under its new 2019 voting policy, ISS’ position has evolved so it will generally issue adverse voting recommendations against nominating committee chairs (and other directors on a case-by-case basis) at companies in either the Russell 3000 or S&P 1500[9] indices where there are no women directors. In addition, Glass Lewis[10] will generally recommend voting against the nominating committee chair (and, depending on certain other factors, other nominating committee members) if a board has no female members.

It is apparent that board diversity, especially with respect to women and minorities serving as directors, is gathering an increasing amount of momentum in the US corporate governance arena, particularly in the technology and communications sectors. Whilst there is undoubtedly a cultural shift happening in US public companies, nevertheless, “Women in the Workplace 2018[11]”, the largest comprehensive study of the state of women in corporate America, found that whilst companies have reported that they are highly committed to gender diversity, and that it matters to them, that commitment has not translated into meaningful progress. The study finds that the proportion of women at every level in corporate America has hardly changed despite women earning more bachelor’s degrees than men do for decades. In addition, contrary to conventional wisdom, women are staying in the workforce at the same rate as men.  This self-evident disconnect has influenced Californian lawmakers to do more.

It is noteworthy that some European countries - including Germany, France, Spain, and the Netherlands - have imposed specific quotas for female directors on corporate boards. Whilst the UK does not have a mandatory quota for women on boards, several organisations have made recommendations on the target number of women that should be on boards, as well as in other managerial roles. The European Commission announced in November 2017 that it is pushing for mandatory quotas, and The Investment Association, a trade body for investment managers, has written to a number of FTSE 350 companies requesting action to accelerate female representation in leadership positions.

Although the mandatory quota approach does not have traction throughout the US and in the UK, in September 2018, California became the first state in the US to mandate that public companies headquartered within the state have at least one female director by 31 December 2019. By 31 December 2021, the applicable minimum number will increase to: (i) three female directors, if the company has six or more directors, (ii) two female directors, if the company has five directors, and (iii) one female director, if the company has four or fewer directors. This new California law is almost certain to face legal challenges and its future may be uncertain but the law signals that the push for increased board diversity is gaining increasing momentum.

Arguably, California is leading the way in bringing forward further new laws for 2019 to foster greater gender equality. As a response to the #MeToo and #TimesUp movements, a number of these new laws address sexual harassment in the workplace, or relax laws that previously would have prevented the disclosure of facts relating to claims of sexual assault, sexual harassment or sex discrimination. By way of example:

  • Senate Bill[12] 1300 – lowers the burden of proof to establish harassment, and provides that a single incident of harassment is sufficient to create a triable issue as to whether a hostile work environment existed. Further, this legislation makes it unlawful “for an employer, in exchange for a raise or bonus, or as a condition of employment or continued employment” to “require an employee to sign a release of claim or right” in most cases. It also makes employers liable for any kind of unlawful harassment by non-employees where the employer knew or should have known of the harassment and failed to take appropriate remedial action.
  • Senate Bill 820 – known as the Stand Together Against Non-Disclosure Act, prohibits settlement provisions preventing the disclosure of information relating to claims of sexual assault, sexual harassment, sex discrimination or resulting retaliation claims.
  • Senate Bill 1343 – the existing law requires employers with 50 or more employees to provide each supervisor with two hours of sexual harassment training every two years. Under the new law, sexual harassment prevention training must be provided as follows:
    • by 1 January 2020, an employer with five or more employees must provide at least two hours of training to all supervisory employees in California within six months of their assumption of a position;
    • by 1 January 2020, an employer with five or more employees must provide at least one hour of training to all non-supervisory employees in California within six months of their assumption of a position;
    • after 1 January 2020, covered employers must provide the required training to each employee in California once every two years.

Senate Bill 1343 also requires the Department of Fair Employment and Housing (DFEH) to provide a method for employees who have completed the training to electronically save and print a certificate of completion.

The #MeToo and #TimesUp movements are clearly not fads in California and need to be taken on board by those with business dealings with California or aspirations to work with the emerging technology companies of Silicon Valley. Politically we are seeing considerable change in the US. The historic class of new congress people who recently took the oath of office in the US House of Representatives includes a record 102 women. Of those 102, we have the first Native American women, the first Muslim women, the first black women elected from Massachusetts and Connecticut, the first Hispanic women elected from Texas, and the youngest woman ever to be elected to Congress. Arguably, we have a new phase in gender equality and female empowerment in US politics. It is noteworthy that a record 208 women MPs were elected to the House of Commons in the 2017 General Election, a record high of 32%.

The emerging view in California is gender diversity and inclusion is increasingly a competitive differentiator that shifts market share toward more diverse companies over time. For one, McKinsey believes more diverse companies, are “better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns. This in turn suggests that other kinds of diversity - for example, in age, sexual orientation, and experience (such as a global mind-set and cultural fluency) - are also likely to bring some level of competitive advantage for companies that can attract and retain such diverse talent”. This view is challenging venture capital firms too. When it comes to early stage investing, a consistent principle is that the founding team is more important than the business plan. The business plan is clearly significant but it is more important for the team to react and adapt more quickly and successfully than the competition. For this reason, most venture capitalists look for a strong founding team. However, many datasets confirm that female founders are underrepresented when it comes to investment from venture capital. Research shows[13] that Harvard Business School alone accounted for some 25% of VCs, with the percentage of women in venture capital staying consistent at 8% from 1990 to 2016, despite gains in STEM[14] and business school degrees over the same period.

This lack of diversity in venture capital materially influences the entire tech sector. Venture capitalists are notorious for investing in startups and founders that match their ‘familiarity principle’ for what has worked in the past. In simple terms, when those doing the matching lack diversity, the businesses being funded will likely follow suit. Consequently, it is no surprise that later stage investment is weighted towards all-male teams. This also holds true at seed stage and Series A. Yet recent research[15] shows that diversity within venture capital firms improves their financial performance. Having at least one woman in a VC fund improved performance by approximately 10% while having women as partners increased the percentage of successful startups supported by those firms - that either went public or sold for more than their total capital investment - from about 28% to 31%. The positive news is more and more venture capital firms are now actively seeking to address gender imbalance both in their own teams and importantly in their investments. Indeed, Crunchbase[16] reports that in 2018, $38.9 billion was invested in companies with a female founder, representing an all-time high for investment dollars into female-founded tech companies. However, 2018 also shows only a 3% increase in the share of venture capital raised by companies with at least one female founder over 2017, which was just 14%.

As we live in a deeply connected and global world, those with business dealings with California or aspirations to work with the emerging technology companies of Silicon Valley would be wise to consider not just our local laws and practices but wider gender diversity and inclusion trends, not least as it may provide them with a compelling competitive advantage. Given the changes we are beginning to see in venture capital firms, those looking to sell into large US companies or to be acquired by US companies should consider their gender diversity and inclusion. Evidence of local family-friendly policies and procedures to demonstrate compliance with local laws is one thing but failing to demonstrate senior level diversity and inclusion may materially affect the prospects of your business gaining vital future investment and international growth. Lessons can be learnt quickly from countries with mandatory quotas. They have seen a significant increase in the number of women on boards, although some companies have reportedly reduced the number of board members or delisted to avoid the quotas. Those companies will be expected to explain why. Some assert that companies generally only select women for board positions from a small, closed group of senior individuals, so women outside that group may struggle to progress to board level. There is also an argument that by focusing purely on the proportion of women, companies overlook other features of board diversity, such as age, disability, race and sexuality. The need to diversify will increase due to broader demographic changes that are happening. Research indicates that by 2050, the majority of the American population will be comprised of Hispanic-Americans (29%), African-Americans (13%) and Asian-Americans (9%)[17].

In the meantime, two questions you can already start preparing to answer are:

  • are women, particularly women of colour, underrepresented in your business?
  • what are you doing to change the way you hire and promote entry and manager-level female employees in your business?

Your actions will speak louder than your words.



[1] Sustainable Development Goals (SDGs) (or Global Goals for Sustainable Development, the 17 Global Goals, the Global Goals or simply the Goals") are a collection of 17 global goals set by the United Nations General Assembly in 2015. The UN-led process involved its 193 member states and global civil society.

[2] The United States Council for International Business (USCIB) advances the global interests of American business through advocacy to policy makers worldwide.

[3] McKinsey & Company is a global management-consulting firm that serves a broad mix of private, public and social sector institutions.

[4] CalPERS manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families with, as of 2018, $360 billion in assets).

[5] The Russell 3000 Index measures the performance of the 3,000 largest publicly held companies incorporated in America, as defined by total market capitalisation. It represents approximately 98% of the American public equity market.

[6] Companies of all sizes, including 70% of the Fortune 500 and institutional investors, rely on Equilar’s data for their most important boardroom decisions.

[7] Spencer Stuart is one of the world's leading global executive search and leadership consulting firms.

[8] Institutional Shareholder Services Inc (ISS) is a leading provider of corporate governance and responsible investment (RI) solutions for asset owners, asset managers, hedge funds, and asset service providers.

[9] The S&P Composite 1500® combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalisation.

[10] Glass Lewis is another leading independent provider of global governance services like ISS.

[11] Since 2015, LeanIn.Org and McKinsey & Company have published this report annually to give companies and employees the information they need to advance women and improve gender diversity within their organisations

[12] The California State Legislature is made up of two houses: the Senate and the Assembly. There are 40 Senators and 80 Assembly Members representing the people of the State of California. The Legislature has a legislative calendar containing important dates of activities during its two-year session. All legislation begins as an idea or concept. Ideas and concepts can come from a variety of sources. The process begins when a Senator or Assembly Member decides to author a bill. A Legislator sends the idea for the bill to the Legislative Counsel where it is drafted into the actual bill. The draft of the bill is returned to the Legislator for introduction. If the author is a Senator, the bill is introduced in the Senate. If the author is an Assembly Member, the bill is introduced in the Assembly.

[13] Harvard Business Review

[14] Science, technology, engineering, and mathematics

[15] Harvard Business Review

[16] Crunchbase report

[17] Pew Research Center, US Population Trends, 2005-2050 (2010)


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