The 2020 U.S. Spencer Stuart Board Index finds that boards are heeding the growing calls from shareholders and other stakeholders and adding women directors. But representation of directors of color in U.S. boardrooms is stagnant. And because boardroom turnover remains persistently low, with new directors once again representing only 8% of all S&P 500 directors, changes to overall composition continue at a slow pace.
Key Takeaways—2020 Spencer Stuart Board Index
Gender diversity: In recent years, boards have prioritized gender diversity, and a growing share of new directors are women. Female representation among new S&P 500 directors more than doubled over the decade, increasing from 21% in 2010 to 47% in 2020. Today, 28% of all S&P 500 directors are women, compared with 16% in 2010.
Racial/ethnic diversity: Progress on racial and ethnic diversity has been much slower. Recruiting of minority directors (defined as Black/African American, Asian and Hispanic/Latinx) increased by just 10 percentage points in the past decade to 22%, which represents a small decline from 23% last year. Of the 92 new minority directors, half (50%) are Black/African American, 35% are Asian, and 15% are Hispanic/Latinx.
Modest increase in minority representation: Minority representation on the boards of the top 200 S&P 500 companies has increased only modestly during the past 10 years. Today, 20% of all directors of the top 200 companies are male or female minorities (10% Black/African American, 6% Asian, 4% Hispanic/Latinx), up from 19% in 2019 and 15% in 2010. To put these numbers in perspective, according to the U.S. Census Bureau, about 40% of the U.S. population is estimated to be a minority, including 18.5% Hispanic/Latinx, 13.4% Black/African American and 5.9% Asian.
- Nearly all (97%) of the top 200 S&P 500 companies have at least one minority director, and 71% have two or more minority directors.
Low board seat turn over: While women and minority men directors constitute a significant majority—59%—of the 2020 incoming class, the overall makeup of boards changes slowly. With new independent directors representing just 8% of all S&P 500 directors, few board seats turn over in a given year, impeding meaningful year-over-year change.
- Just over half (55%) of the 494 S&P 500 boards in our index appointed a new independent director, and 21% appointed two or more new board members. Boards added a total of 413 new independent directors during the 2020 proxy season, a decline from 432 in 2019. The additions translate to an overall turnover of 0.84 new directors per board, down slightly from 0.88 in 2019.
Regarding the 2020 incoming class of S&P 500 directors:
- 45% are actively employed, compared with 59% a decade ago.
- 16% are retired CEOs, outpacing active CEOs (13%). A decade ago, 24% of new independent directors were active CEOs and 13% were retired CEOs.
- 27% have financial backgrounds, including banking, finance, investment or accounting credentials, versus 21% a decade ago.
- 29% are active or retired division/subsidiary, functional or other line leaders, compared with 23% in 2010.
- 28% are serving on their first public company board, a small increase from 27% in 2019.
- 42% have global professional experience, defined as having worked at an international location, compared with 31% in 2019.
- 17% were born outside the U.S., up from 13% in 2019.
- 17% are “next-generation” directors, age 50 or younger, essentially flat for the past decade. 56% of these next-gen directors are serving on their first public company board, and half are women.
CEOs are serving on fewer outside boards: 58% of S&P 500 CEOs do not serve on any public corporate boards in addition to their own board, compared with 54% 10 years ago. CEOs accepting other corporate directorships do so sparingly: 39% of CEOs serve on one outside public company board, and just 2% serve on two. One CEO serves on three outside public boards. A decade ago, 14% of CEOs served on two or more other public company boards.
Mandatory retirement policies are impacting board turnover on S&P 500 boards: Although slightly fewer S&P 500 boards report having a mandatory retirement policy for directors than 10 years ago—70% versus 74% in 2010—mandatory retirement ages continue to rise among boards that have them. Nearly half (48%) of boards with age limits have a mandatory retirement age of 75 or older, compared with just 19% a decade ago. More than three-quarters (77%) of the independent directors who left S&P 500 boards in the past year served on boards with mandatory retirement ages. The age limits influenced the majority of these departures, with 39% either exceeding or reaching the age cap and another 14% leaving within three years of the retirement age.
Few boards use term limits to spur turnover: Only 29 S&P 500 boards (6%) report having explicit term limits for non-executive directors, compared with 24 boards (5%) in 2010. The majority of boards with term limits, 83%, set limits at 10 to 15 years.
Looking ahead: Progress on boardroom diversity
Boards face intensifying pressure to prioritize minority recruiting in the coming year, with support for greater board diversity increasing on several fronts, including from investors and state legislators.
We’re seeing evidence that boards are responding to calls for change, even if the numbers aren’t yet reflected in S&P 500 proxy data. Our survey of nominating/governance committee chairs confirmed that boards are shifting their recruiting priorities to increase recruiting of minority directors; 76% said enhancing racial and ethnic diversity on the board would be their top recruiting priority for the next three years.
A significant majority—61%—of the surveyed nom/gov chairs said they are not satisfied with the current level of racial/ethnic diversity on their board, with 76% hiring an executive search firm to help identify minority candidates, 71% prioritizing diversity as a critical criterion for new searches, and 66% assessing the skills, experience and expertise of existing board members to identify gaps.
Boards have publicly disclosed their commitment to identifying ethnically and racially diverse candidates for the board. This year, 123 S&P 500 companies (24%) disclosed a commitment to considering diversity when recruiting new directors. In addition, more than a dozen companies announced that they would add at least one Black director to their boards within the next year as part of an initiative called The Board Challenge, which is pushing to increase boardroom diversity into boardrooms.
But these efforts may run into the headwinds of low boardroom turnover. Only 16% of sitting independent directors on boards with age caps are within three years of mandatory retirement, and with these directors averaging 63 years of age, most S&P 500 directors have years of potential service before reaching mandatory retirement, suggesting that turnover will remain low.
However, our survey of nom/gov chairs may portend faster turnover in the near future. On average, the surveyed chairs expect one director each to retire and join their boards in each of the next two years, faster turnover than 2020 when just over half (55%) of S&P 500 boards appointed one or more new independent directors.
