Let the public, not a law, push corporate boards to be more diverse: Chicago Sun-Times editorial

on Apr29
by | Comments Off on Let the public, not a law, push corporate boards to be more diverse: Chicago Sun-Times editorial |

2019-04-29 19:27:36

Here’s a snapshot from 15 years ago of “diversity” in corporate boardrooms:

Among the Fortune 100 — businesses such as General Motors, Exxon Mobil and Walmart — women held just 17 percent of seats on boards of directors. People of color were more of a rarity, holding 15 percent of seats.

Fast forward to 2019, and the picture looks more like the real world. Women now hold 25 percent of board seats in Fortune 100 companies; minorities, 19.5 percent.

An all-male, all-white board now stands out, thanks to shifting cultural norms that put a premium on inclusiveness. No savvy company wants to be seen as out-of-touch and stuck in a time warp, not with trillions of dollars in customer buying power at stake.

Give credit, as well, to major investment managers, who have pressured companies to add female board members. They have cited research showing that companies with women on their boards have higher profits and greater productivity.

“We would expect to see at least two women directors on every board,” investment manager BlackRock Inc. stated last year in its guidelines for shareholder voting.

Despite all this progress, there’s still a great deal of work to be done. America ranks near the bottom compared to other Western nations on board diversity, according to a recent international study.

Women and people of color on Fortune 100 boards of directors

 

Here in Illinois, some lawmakers now want to continue turning that around by making diversity on corporate boards a legal mandate, not just a good business practice. House Bill 3394 would require publicly traded companies that are incorporated in Illinois to have at least one woman, one African American and one Latino board member by the end of 2020. Companies that don’t comply could be fined $100,000 for a first offense, and $300,000 for subsequent offenses.

Similar bills are in the works in New Jersey, Massachusetts and Washington. California passed the nation’s first such bill last year, despite opposition from a wide array of interests including local chambers of commerce, wine grape growers and restaurant and trucking industry associations.

We strongly support the ultimate goal here. Public companies ought to have boards of directors that reflect the 21st Century, not the 19th.

But HB 3394, which passed in the House in March and is pending in the Senate, takes the wrong approach.

For one, where’s the big problem that requires a major legislative solution? Most companies that would be subject to the Illinois law already meet its requirements.

Only 10 companies or so would be affected, acknowledges state Rep. Emanuel “Chris” Welch, D-Westchester, the bill’s chief sponsor. Those 10 companies have women on their boards, he said, but not African Americans.

Stepped-up public pressure rather than legislation, we suspect, would be more effective in pushing such companies along. A legal mandate might simply let them off the hook, allowing them to check off quota boxes instead of getting serious about the issue.

HB 3394 also would require the Secretary of State to maintain and publish statistics on compliance with the law, a provision that makes more sense.

We don’t favor a mandate on diversity on corporate boards, much preferring to let the historic trend — diversity is already happening — continue to play out. But history might move a little faster, even without a mandate, if the Secretary of State were to regularly reveal the names of corporations stuck in the past.

Let everyday folks — current and potential stockholders, customers and employees — see at a glance which companies reflect today’s world, not yesterday’s.

The Securities and Exchange Commission took a similar approach earlier this year, urging companies to disclose more information about board diversity and how they factor it into the mix when selecting board members.

Mark Denzler of the Illinois Manufacturers’ Association, which opposes the bill, warns that mandating corporate board diversity could face legal and constitutional challenges, a point also made by California Gov. Jerry Brown when Brown signed that state’s bill into law.

To date, California has not been sued. But the argument is that a board that doesn’t have a vacancy and opts to get rid of a male board member to add a woman could be open to charges of gender discrimination.

The Illinois Manufacturers’ Association also would prefer that the diversity requirements be phased in.

“We fully support the intent,” Denzler told us. “Just not the timing and the means.”

Exactly. If ever there were a case where public and shareholder pressure makes more sense than another law, this is it.

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