Board Diversity Is the Right Thing to Do: SEC Chair Mary Jo White
From 1993 to 2002, I had the honor of being the first, and still only, woman to serve as the United States Attorney for the Southern District of New York. In that role, I prosecuted a variety of criminals, from white-collar lawbreakers to mobsters to terrorists. It was an exciting and impactful job. One memorable impact came from outside of the courthouse and has carried over to my current job as chair of the Securities and Exchange Commission.
While U.S. attorney, I also served a term as the chair of the Attorney General's Advisory Committee under the first woman attorney general, Janet Reno. In that capacity, I attended the attorney general's weekly senior staff meetings, which were also attended by a very impressive array of presidential appointees. In these meetings, it was clear that the dynamic was different. For the very first time in my career, then almost 20 years, I was in a high-powered meeting where the women outnumbered the men. In that environment, the women were empowered and spoke up more and offered a number of breakthrough solutions. These meetings brought home to me that diversity contributes to high-quality decision-making and generating the best ideas.
Most public company boards still stand to benefit greatly from this reality. Companies that have proactively embraced diversity deserve to be recognized as leaders of the change that is not only the right thing to do, but also benefits their companies.
For many years now, several studies have shown that diversity in the boardroom is linked to better financial results for companies. The landmark 2012 study by the Credit Suisse Research Institute, for example, reported that, from 2005 to 2011, companies with women on the board had higher average returns on equity and higher net income growth. In 2014, the institute followed up with another study, which confirmed earlier findings that "greater gender diversity in companies' management improves their financial performance." In some cases, all it seems to take is one woman on the board for a company to see a difference. Between 2006 and 2015, companies with at least one woman on their board had an average return on equity of 14.1%, compared to only 11.2% for all-male boards.
Even with the mounting evidence of benefits, however, women made up only 26.9% of new directors last year and the numbers are even lower for minority directors. Companies can do so much better and the ability to effect immediate change lies with them.
While 98% of S&P 500 boards have at least one female director and 79% have at least one minority director, the total percentage of women on the boards of S&P 500 companies hovers at less than 20%, and the total percentage of minority directors at the largest 200 S&P 500 companies is 15%. And it is not a supply issue. There are many resources companies can use to seek out well-qualified women and minorities for their boards.
In July, a who's who of CEOs came out strongly in favor of pursuing more diverse boards. In an open letter, the group called for balancing the need for "wisdom and judgment ...with the need for fresh thinking and perspectives." And this past spring, the Business Roundtable, an association of CEOs whose member companies employ nearly 16 million people and have about $7 trillion in annual revenues, announced that it was prioritizing diversity in director searches. These are positive developments and more companies should follow suit.
At the SEC, we are working to do our part on the rulemaking front. At my direction, the SEC staff is now preparing a recommendation to the commission to amend our current diversity disclosure rule to require more specificity, including information on the race, gender and ethnicity of board members and nominees.
In the United States, government does not dictate who companies must hire or elect to boards--these and many other decisions are generally left to the business judgment of companies and their shareholders. Indeed, the ability of companies and shareholders to establish their preferred governance framework is a hallmark of our capital markets and long thought to be a source of their strength. The time is right to amplify that strength through board diversity. It is an easy business decision to make and the right thing to do.
Mary Jo White is chair of the Securities and Exchange Commission.