In the past couple of years, diversity has grown to become a pressing matter for companies across the world, especially in America.
It is a proven statistic that diversity in executive leadership produces higher revenue and more innovation. In 2018, a Boston Consulting Group study found that companies, with diverse leadership, had higher revenues from new products and services (an indicator of successful innovation) as well as higher EBIT margins. That same year, McKinsey & Co. found that “diverse companies are 33% more likely to have greater financial returns than their less-diverse industry peers.”
From these numbers, we can tell just how important diversity, on boards and executives, is for companies. It stands to reason that a homogenous group of people would not be able to accurately represent the needs of the wildly unique public. It also makes sense that in the discussion, diversity of experience and healthy disagreement would aid in innovation and decision-making.
However, in reality, diversity and representation on company boards are sadly lacking. For example, in 2021 30% of directors on S&P Fortune 500 companies were women and 21% were from historically underrepresented racial and ethnic groups. In 2022 those numbers went from 30% to 32%, and from 21% to 22%, an almost invisible advance for executive diversity. In 2022 46% of all S&P 500 directors are from historically underrepresented groups such as; Black/African American, Asian, Hispanic/Latino/a, Native American, Native Hawaiian/Pacific Islander, or more than two races (multiracial). In 2021 only 60% of S&P 500 companies even disclosed their racial/ethnic composition.
Though these statistics are disheartening, 2022 has brought a steady increase in DEI initiatives across American companies. As opposed to the 60% in 2021, this year we see 93% of S&P 500 companies embrace a transparent approach to diversity.
In a survey, Nasdaq found that 75% of its over 3,000 listed companies would not meet the objectives. They decided to pass the diversity regulations anyway. With an average board size of nine members, requiring two diverse members means that upwards of 4,500 board seats will need to be filled with diverse members within the next year.
What does this mean for women and members of underrepresented minorities? It means that now, more than ever is the best time to search for board positions.
Diversity and inclusion is a never-ending initiative in the executive world. As the years pass we hope to see equality among board members and director positions, and more accurate representation.