Bill seeks more diversity on boards
sponded to questions about their board’s ethnic makeup. Female directors hold 26% of the board seats.
Supporters of the Illinois measure say boardroom diversity is not only the right thing to do, but the diverse perspectives are crucial to companies’ bottom lines. A McKinsey report found that in 2017, companies with the most ethnically and culturally diverse boards worldwide were 43% more likely to report higher profits.
It’s a finding embraced by advocates. “Diversity from ethnicity, gender, age, all make a difference in a management team and in a boardroom,” said Sam Scott III, former chairman and CEO of Corn Products International (now Ingredion). Scott, who is African American, is a member of several publicly traded corporate boards including Abbott Laboratories, Motorola Solutions and Bank of New York Mellon. “Most businesses are dealing with customers who are from those diverse groups.”
In the Tribune’s review, all but one company — CNA Financial — had at least three women on their boards. CNA had one female director. Others, such as Loop-based CME Group and Vernon Hills-based CDW had four women. Abbott and Ulta Beauty had five female directors.
Meanwhile, half of the 30 corporate boards had only one African American member and seven of them — including Walgreens, Kraft Heinz (which has headquarters in both Chicago and Pittsburgh), Oreo cookie-maker Mondelez and insurance company Arthur Gallagher — had no African Americans.
CME Group had four women on its 21-member board but no African Americans. However, Phyllis Lockett was elected to the board at the company’s annual shareholders’ meeting Wednesday, said spokeswoman Laurie Bischel. Lockett is the first African American board member in the company’s 170-year history, Bischel said.
Lockett, the CEO of education curriculum provider Leap Innovations, said her background in entrepreneurship and education make her uniquely suited for the CME board. “This movement toward more diversity on boards is important progress,” she said in an email. “As corporate boards increasingly focus on diversity, the companies they serve will only become stronger by being informed with, and challenged by, a variety of leadership perspectives and life experiences.”
John Rogers, chairman and CEO of Ariel Investments, co-founded the Black Corporate Directors Conference in 2002 as a way to foster diversity in corporations’ managerial and boardroom ranks. He supports the Illinois legislation as a means of ensuring boards have people of diverse backgrounds.
“The vast majority of these companies have put in writing they are committed to diversity and inclusion, but in reality they are not living the values they have said they believe in,” said Rogers, an African American who serves on the boards of McDonald’s, Nike and The New York Times Co. Diversity at the board level trickles down to employees and customers.
While national data show that last year, women and minorities made up half of new directors on boards, one fact of boardroom life that has slowed diversity efforts is the long tenure of board members, said Julie Hembrock Daum, a consultant at executive search firm SpencerStuart. Because retirement age on most boards, if they have one, can be age 75 or older, board membership turnover is just 8 or 9% annually. “That means year in and year out, only a few (seats) are turning over, so change is slow,” Daum said.
The Illinois measure would allow a company to expand its board to comply.
Recruiting people of color is particularly difficult, proponents say, because boards have historically looked to the C-suite — chief executive officers, chief marketing officers and chief financial officers — instead of searching for specific skill sets. Since there are few blacks and Latinos at the top of America’s executive ladder, that approach leaves the pickings slim.
“The whole misnomer that you have to be a CEO to be those things makes the pool impossible, because there are just not that many CEOs and CFOs of color in those positions,” said Skipp Spriggs, president and CEO of the Executive Leadership Council, an 800-member group focused on increasing the number of African Americans in C-suites and boardrooms. “When you start to focus on skill sets and look beyond recruiting a CEO or CFO, we have found there’s an amazing pipeline of talent,” he said.
Added Scott, “If they say they can’t find diverse talent, they aren’t looking.”
Latinos and Latinas should also have a seat at the table, according to Esther Aguilera, president and CEO of the Latino Corporate Directors Association. “Illinois has the fifth-largest population of Latinos, representing $14 billion in purchasing power and over 70,000 business owners.”
Board diversity isn’t just an issue for Illinois companies. Last year, more than 1,000 board seats were filled by directors new to the boards of Fortune 500 companies. The vast majority of those seats were filled by white men and women. Nearly 60 were filled by white men, according to the Alliance for Board Diversity/Deloitte study. In the Fortune 100 company category, more than 77 of the board seats were filled by white men and women. Just over 51 were filled by white men.
Minority corporate directors are slowly yet steadily gaining ground.
Black women gained 13 seats. Still, the 42 seats held by black women comprise only 3.4% of all board seats in the Fortune 100.
Black men gained 4 seats. In total, black men hold 84 board seats among Fortune 100 companies, representing 7.7% of all board seats, according to the Alliance for Board Diversity.
Nationally, Hispanic/ Latino men gained 21 board seats in 2018, the research found. Hispanic/Latina women didn’t fare as well, gaining four seats in 2018.
If the Illinois legislation is signed into law, some legal experts expect the law to be challenged on constitutional grounds.
“It’s fundamentally undemocratic. By mandating (board seats) you create the problem of reverse discrimination,” said Charles Elson, the Edgar S. Woolard Jr. chair in corporate governance and the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “It’s the shareholder’s role, not the government’s, to decide who is elected to the board.”
Also, companies that are based in Illinois but were incorporated in another state have legal grounds to challenge the law, said H. Todd Henderson, a law professor at the University of Chicago Law School.
There’s another reason the proposed measure could face a legal challenge, experts say. A company’s so-called internal affairs are organized in the state in which it was incorporated, raising the question of whether one state’s laws would apply to the internal affairs of a business set up in another state. “It’s a bad idea and they’ll just move,” Elson said.
The California law however, has not been challenged in the courts, according to Betsy Berkhemer-Credaire, CEO of nonprofit 2020 Women On Boards, an advocacy group which supported the California legislation.
Proponents of the bill say they are less worried about lawsuits than about leveling the playing field for talented minority executives and raising awareness of the issue. “We are not asking companies to lower the bar,” said Billy Dexter, a partner at executive search firm Heidrick & Struggles and co-chair of the Executive Leadership Council’s corporate board initiative. “All we want is the opportunity to be considered.”
“It’s fundamentally undemocratic. By mandating (board seats) you create the problem of reverse discrimination.”
— Charles Elson, the Edgar S. Woolard Jr. chair in corporate governance and the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware