Academic journal article Journal of Corporation Law

Next Stop for Diversity Initiatives: Corporate Boardrooms

Academic journal article Journal of Corporation Law

Next Stop for Diversity Initiatives: Corporate Boardrooms

Article excerpt

I. Introduction

Over time, minorities have won some battles for equality within society, gaining leverage with voting rights, job opportunities, and education. However, some areas of equality have been left largely unaddressed. The corporate boardroom remains a setting in which diversity is still lacking. 1 While the Securities and Exchange Commission (SEC) has released some directives concerning board diversity,2 and some state-level initiatives have recently been passed,3 boardrooms in the United States have not diversified at the rate that they could. However, boards benefit from increased diversity. As diversity increases, the breadth of perspectives on a board increases4-contributing to better decision-making-which arguably increases corporate performance in other ways.5

This Note addresses the lack of board diversity initiatives currently in place in the United States and discusses the benefits that might be obtained from adopting a heightened diversity policy modeled after those found in other countries. While this Note primarily discusses gender diversity, this is merely due to more extensive literature on gender diversity. The benefits and recommendations concerning diversity initiatives can be applied to race, ethnicity, and age as well. Part II discusses existing initiatives to increase board diversity in the United States and some of the costs and benefits associated with board diversity policies generally. Part III analyzes how effective the United States' board diversity policies have been in increasing divesity and compares these methods to board diversity methods currently employed in other countries. Finally, Part IV recommends a heightened board diversity policy in the United States to help increase board diversity and, subsequently, corporate performance at a faster rate. While a number of other articles discuss diversity on corporate boards,6 none have yet analyzed board diversity at a state, national, and international level, including recent legislation, and concluded with the recommendation described in this Note.

II.Background: Pros and Cons of Increasing Board Diversity

This Part will review the recent movement toward increasing board diversity. In particular, this Part will begin by discussing initiatives taken by federal, state, and governmental actors. This Part will then discuss the costs and benefits that have been associated with efforts to increase diversity.

A.Initiatives to Increase Board of Director Diversity in the United States

Corporations continue to struggle to maintain diversity on their boards. In 2011, 74% of corporate directors were white males.7 Furthermore, historically, a large majority of these directors came from upper or upper-middle class backgrounds.8 Fortune 250 companies did not even begin to elect female directors to increase diversity until the mid1980s.9

While diversity on boards is still largely lacking, a recent movement has developed to further increase the amount of diversity on boards.10 Stakeholders, organizations, and shareholder groups are becoming increasingly interested in board diversity.11 Despite the growing focus, diversity has not rapidly increased.12 The number of women serving on public company boards only increased from 16% to 18% from 2008-2012.13 About 10% of U.S. companies have no women on their boards.14 While some corporations have used term limits to increase the amount of younger members on boards, this growth has been slow. 15

1.Federal-Level Initiatives to Increase Board Diversity

Instead of instituting federal regulations that mandate diversity, the United States has historically simply encouraged diversity on boards.16 In 2009, the SEC adopted a rule regarding the reporting of how diversity was taken into account in board nominations.17 The SEC Amendments to Item 407(c) of Regulation S-K require companies to disclose whether diversity is considered in identifying nominees and, if so, how diversity is considered. …

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