Overall, we found a noticeable improvement in S&P 500 disclosures on director diversity and skills. While over 30% of companies received a “Poor” rating in 2020, less than 10% received one this year. Further, most companies received a “Poor” or “Fair” rating in 2020. A vast majority of companies received a “Fair” or “Good” rating in 2021, a rapid improvement in overall disclosure on these topics.
Lack of diversity in American boardrooms has been an area of investor concern, and in recent years, there has been increasing pressure on companies to improve board disclosure and best practices in this area. As seen in our diversity disclosure assessments, S&P 500 companies included more information and metrics about the composition of the board, skills, and diversity considerations in 2021.
In the 2022 proxy season, we expect to see the trends within the S&P 500 continuing to rise, with more companies disclosing the racial/ethnic composition of the board, for example. We also expect the wider market to follow suit, and accordingly we have expanded our diversity disclosure assessment to all companies in the Russell 1000 index. We are seeing increasing legislation and exchange requirements in this area as well.
The Nasdaq proposal approved by the SEC in August 2021, which requires companies listed on the exchange to disclose board racial/ethnic demographic information, will come into effect in August 2022. Following the SEC’s approval of the Nasdaq rule, we continue to monitor whether other exchanges or the SEC will adopt similar rules addressing board diversity and disclosure.
In time, we believe that these disclosures will become standard to include in proxy statements, and that providing less robust disclosure than peers could be an indication that a company has gaps in skills, backgrounds, experiences, or diversity that the board does not want to make apparent to shareholders. We expect to see that investors are increasingly willing to hold boards accountable for board composition, diversity and disclosure in the 2022 proxy season.