Board Diversity Increased in 2021. Some Ask What Took So Long.

Paula T. Hammond is a pioneering chemical engineer who has researched cancer and other illnesses at the Massachusetts Institute of Technology for years. Her work, people in her field said, makes her a natural pick to sit on the board of a pharmaceutical or biotechnology company.

Yet it was only in 2020 that Dr. Hammond, who is Black and heads the chemical engineering department at her university, became a director of a publicly traded company. “That was my first time being approached to sit on a public board,” she said.

With their ability to steer companies’ biggest decisions and pick key executives, boards wield crucial power in American business and society. They have long been overwhelmingly white and male. Executives and recruiters have often complained that there aren’t enough women and nonwhite people qualified to be directors, a phenomenon often described as a “pipeline” problem.

But under pressure to achieve more diversity in senior ranks — from advocates for social change and, at times, their own employees — companies appear to be discovering that a big talent pool of nonwhite people and women for board seats does, in fact, exist. Some, like Dr. Hammond, have been hiding in plain sight.

Directors who are Black, Asian, Hispanic, Middle Eastern or from another nonwhite ethnic group now occupy 4,500 board seats among companies in the Russell 3000 stock index, 25 percent more than they did at the end of 2020 and nearly 50 percent more than at the end of 2019. Those numbers come from an analysis by ISS Corporate Solutions, which advises businesses on corporate governance, executive pay and social and environmental issues.

Directors from underrepresented groups occupy 17 percent of board seats, up from 14 percent in 2020, the ISS Corporate Solutions data shows. Women, of all races, have also made gains. They now account for 27 percent of all directors, up from 24 percent.

Dr. Hammond’s experience and that of other newly appointed board members suggest there are many more qualified candidates who have been overlooked by companies and executive recruiters.

“The biggest problem is that people had not spent enough energy focusing on finding people who could be great candidates for boards,” said Freeman A. Hrabowski III, president of the University of Maryland, Baltimore County, and a longtime member of the boards of T. Rowe Price, the investment firm, and McCormick, the spice and seasoning company.

Serving board members have the job of seeking out new directors — and a reason boards are so white and male is that they seek directors who have had experience at the highest levels in corporate America, a group that until the last decade or two has been largely white. Critics of corporate board recruiting also argue that executives tend to prefer recruiting from their own professional and social circles, or on the basis of recommendations from associates and friends.

Though the number of white directors fell slightly in 2021, they still account for eight of every 10 board members, and six of 10 are white men.

Dr. Hrabowski, who is Black, said that while some companies had worked hard to make their boards more representative of the U.S. population, there was still a long way to go. “It’s fair to say companies are being more creative in finding candidates today,” he added.

The recent influx of nonwhite and female directors occurred after the killing of George Floyd in May 2020, and the outpouring of anger and frustration that followed. That prompted many companies to pledge to make changes to address racial injustice and inequity.

California, where many companies are based, passed laws that require greater diversity on corporate boards — and these appear to have had an impact. One, passed in 2018, requires boards of public companies with their principal executive office in the state to have at least two female directors, and the other, passed in 2020, says boards must have one or more directors from an “underrepresented community,” which includes people of several races and ethnic groups and people who identify as gay, lesbian, bisexual or transgender. Other states have introduced legislation that would require boards to have a certain number of women.

In 2021, Black directors were named to fill 535 board seats, to raise their total to 1,919, a nearly 40 percent increase, according to the ISS Corporate Solutions analysis. They now account for 7.4 percent of directorships, up from 4.5 percent at the end of 2019.

But directors from other underrepresented groups did not fare as well. The number of Hispanic people on boards, for example, went up 15 percent, yet they make up only 3 percent of the total, far shy of their 18.5 percent share of the population.

“It is still not — as you can see from the numbers — growing at the level that it needs to,” said Esther Aguilera, chief executive of the Latino Corporate Directors Association. She added, “We celebrate all diverse appointments, but Latinos are being left behind.”

Jennifer Tejada, the chief executive of PagerDuty, says she hasn’t had to settle for lesser candidates to have a diverse board.Credit…Amy Osborne for The New York Times

When companies have recently gone looking for qualified directors from underrepresented groups, they have often found strong candidates.

Take Dr. Hammond. She is a leading cancer researcher and an expert in the materials that help take drugs to specific parts of the body.

“She is a shining example of someone who would have been overboarded a long time ago,” said Terry McGuire, a venture capitalist, using a term for people who sit on a lot of corporate boards.

Mr. McGuire is on the board of Alector, a biotech company trying to develop treatments for Parkinson’s disease, Alzheimer’s disease and other brain disorders. In 2019, he suggested that Dr. Hammond consider joining, too, which she did in March 2020.

Soon after Alector announced her appointment, several other companies asked if she’d join their boards, Dr. Hammond said. But she declined in part because she felt she would be stretched too thin; she is also on President Biden’s Council of Advisors on Science and Technology.

Asked why she thought she hadn’t been approached earlier, Dr. Hammond said, “My guess would be that many knew me but just didn’t think about whether I might be helpful from the perspective of a board member.”

People pushing for greater diversity on boards say companies need to expand their searches beyond current and former senior business executives, and emphasize skills over title.

“If you look around, everyone wants a sitting or recently retired C.E.O. who’s done very similar things to what their company’s trying to do sometime in the last decade,” said Jennifer Tejada, chief executive of PagerDuty, a software company, and a member of the boards of Estée Lauder and UiPath, a software company. “That’s a very narrow lens to look through.”

Under her leadership, PagerDuty’s eight-member board has just two white directors. She emphasized that she hadn’t had to settle for lesser candidates to have a diverse board. Her directors, she noted, include the dean of engineering at the University of Michigan, Alec D. Gallimore, who is Black; Bonita Stewart, who is a board partner at Gradient Ventures, an investment arm of Google, and the first Black woman to be a vice president at Google; and Rathi Murthy, who is Indian and a top technology executive at Expedia Group.

To ensure there are enough board candidates from a variety of backgrounds, companies need to do a better job promoting more people from underrepresented groups into senior roles, some executives said. That is especially true of increasing the number of Hispanic board members, said Elena Gomez, the chief financial officer of Toast, a software company, who is on PagerDuty’s board.

“What we need to do is get more Latinx people into those management roles, and that starts deeper in how you recruit and train,” Ms. Gomez said.

But the push to make boards more diverse has led to a backlash by some conservatives and libertarians. Some are suing to overturn the California laws, arguing that the state is illegally restricting the right of shareholders to select and vote on directors based on merit and skill.

“A coercive quota is being imposed on these companies,” said Daniel Ortner, a lawyer with the Pacific Legal Foundation. The foundation is representing the National Center for Public Policy Research, a group that says it promotes free-market policies, in a lawsuit challenging the law that requires directors from underrepresented groups.

Proponents of greater diversity argue that female and nonwhite board members bring different experience and knowledge, especially about markets and customers that existing directors might not know well. That should, over time, lead to greater profits, higher sales and better morale among employees.

“As a mathematician, I always emphasize the importance of problem solving,” Dr. Hrabowski, the university president, said. “And when you have more people in the room with different perspectives, who solve problems in different ways, you get a broader set of solutions.”

Dorika Beckett, the chief executive of private health care companies, joined the board of Velocity Financial, a publicly traded mortgage company, in 2020. She said her contributions to board discussions had been well received, adding that she can provide expertise that could help Velocity better serve Black borrowers.

“That is something I think I can bring to the executive level,” Ms. Beckett said.

Dr. Hammond said her experience as a department head at a top university had been useful in her work on Alector’s compensation committee, which oversees pay and hiring of senior officers. “I feel I can bring a perspective that involves the human side of managing extremely smart people in ways that are unique.”

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