Lissa Broome is director of UNC Law’s Diversity Initiative, which tracks the gender, racial and ethic diversity of public company boards in North Carolina. (John Disney/Daily Report)
Public company boards, like large law firms, continue to be dominated by white men—and the needle is hardly moving, says Lissa Broome, a University of North Carolina law professor who researches board diversity. Women and minorities are making very slow progress in gaining seats, and lawyers are scarce on those boards too.
Broome founded and directs UNC Law’s Diversity Initiative, which tracks gender, racial and ethnic diversity for public company boards in North Carolina. Broome presented her findings at a colloquium at Georgia Tech’s Scheller College of Business on June 16.
Representation of women and racial and ethnic minorities on boards of North Carolina’s 50 top-grossing companies increased by only 1 percentage point between 2006 and 2012, according to the Diversity Initiative’s research—even though all but one of the 49 directors and eight regulators, consultants and headhunters that the group interviewed for the most recent census agreed that board diversity is a good thing.
For the top 50 North Carolina companies, the percentage of women directors inched from 11.2 percent in 2006 to 12 percent in 2012, and the percentage of minority directors went from 6 percent to 7.1 percent, the group found. The group takes a diversity census every three years and the next will be in 2015.
The Georgia gender diversity statistics aren’t much different.
For Georgia’s 50 top-grossing companies, women hold 14.4 percent of 507 director seats, according to a 2013 tally by OnBoard, an Atlanta nonprofit that tracks and seeks to increase women’s representation on Georgia public company boards. (While the group tallies women of color, it does not track director seats by race and ethnicity.)
The greatest number of women on any Georgia corporate board is four—a distinction held by The Coca-Cola Co., Coca-Cola Enterprises and EarthLink. AGL Resources, The Home Depot, State Bank Financial Corp. and UPS have three each.
Broome said that the larger the company, the higher the percentages of women and minorities on its board. At Fortune 100 companies, 19.8 percent of company directors were women and 16.3 percent were minorities in 2012.
The recession could be a factor for the glacial rate of change. Just as for law firms, companies’ interest in diversity wanes during difficult times, Broome found from the interviews with directors. “A company in major transition places more of a focus on operations and less on diversity,” she said.
Meanwhile, Broome said, the number of open director spots has shrunk, making it more difficult for women and minorities to gain seats.
Companies have reduced the size of their boards in response to the 2002 Sarbanes-Oxley Act, and many have raised the mandatory retirement age from 65 to 70, she said, so current members aren’t leaving. The average age for public company directors now is 66, she added.
Most board appointments are based on recommendations from existing board members or the CEO, who are usually white men. They are looking for high-level corporate executives or people with experience serving on another public company board, Broome said, and only a relatively small number of women and minorities have that experience.
Broome said a lot of the directors that she and her Diversity Initiative colleagues interviewed blamed a small pipeline of qualified women and minorities for their lack of representation on for-profit boards.
“I personally don’t believe that,” Broome said, making an analogy between the pipeline for corporate boards and for partnership at large firms, where under-representation of women and minorities in the upper echelons also persists.
“I graduated from law school 30 years ago. At that time, 30 percent of the class was female. I can guarantee you that at the large law firms down the way, 30 percent of the partners aren’t women,” she said, gesturing toward Midtown, a few blocks from Georgia Tech’s business school, where Atlanta’s largest firms are located.
Broome started her career in 1982 in the banking practice at King & Spalding, then joined UNC’s law faculty in 1984.
“The pipeline has been fairly full but it has been leaking along the way,” she said.
Broome said broadening the criteria for corporate board admission beyond C-level executives and people already serving on another public company board is a way to increase diversity. Requiring that an open seat be filled by a woman or minority is another way to shift boards’ composition.
Establishing term limits could be another way to hasten change, she said, adding that in Britain, a board member is no longer considered independent after nine years of service.
Setting quotas for women and minority representation is a highly effective way to change boards’ composition, Broome said, adding she does not think that is likely to happen in the United States.
Norway, Spain, France and Ireland, for instance, require that 40 percent of public company board seats be filled by women. Norwegian companies that do not hit that target are delisted from the country’s stock exchange.
The SEC promulgated a new rule, effective Feb. 28, 2010, saying public companies must disclose in their proxy filings whether their board considers diversity when choosing new directors—but Broome said the rule is vague and lacks teeth.
“We had hoped briefly in 2010 that we would see some progress—that shaming would work. But there has been little progress,” Broome said.
For one thing, the SEC rule does not define diversity, she said, so a company could claim directors were diverse based on geography or other criteria.
UNC Law’s Diversity Initiative, along with the North Carolina State Treasurer’s Office and several institutional investors, will petition the SEC to revise the diversity disclosure rule’s language and specify that gender, race and ethnicity of board members must be disclosed, Broome said.
“Shareholders want this information,” she said.
There have been a number of shareholder efforts to increase the diversity of public companies’ directors, Broome said, just as the diversity push for large law firms has been driven by their corporate clients.
Lawyer board members
Lawyers are another underrepresented minority on public company boards, even though they are well represented on nonprofit boards.
In an interview following her presentation at Georgia Tech, Broome said companies often have a bias against selecting lawyers for their boards because they don’t think lawyers have the requisite experience or perceive them as naysayers. “They may think they can call their legal department if they need advice on legal issues,” she said.
Broome suggested that lawyers sell their experience advising clients on corporate and governance issues and cast themselves as problem-solvers. They may not have corporate board experience, she said, but they’ve performed the same service for numerous clients.
“Lawyers are typecast as naysayers when in reality good lawyers are creative problem-solvers. They can put together complex fact patterns and digest a lot of information and figure out what is most relevant. They ask good questions—they’re skeptics. That’s what directors are supposed to be doing,” Broome said.
Most law firms do not permit public company board service, she added, because they do not want to be conflicted out of doing work for the company or fear the liability exposure.
“Most firms encourage lawyers to serve on nonprofit boards, but they have an outright prohibition, if not discouragement, of serving on for-profit boards,” she said.
“Obviously there are exceptions,” Broome said, noting that Jones Day’s Atlanta managing member, Lizanne Thomas, serves on the board of Krispy Kreme, a North Carolina public company.
And it could be to a firm’s advantage to have its lawyer sitting on a board “with eight prominent business people who might come to the firm based on the relationships established,” she said. “You foreclose one potential client but you open up the possibility to work with eight other potential clients,” she said.
As for liability, Broome said it is very rare for a director to be held personally liable for the company’s issues, as was the case when WorldCom collapsed.
Bank boards are a different situation, she noted. “If a bank fails, the FDIC can come after you, so that is a risk,” she said. Liability insurance is available for directors and officers, but, Broome said, banks are more highly regulated than a regular public company, which gives the FDIC “more things in their toolkit to go after you on.”