5/11/2021
Analysis: What Happened When a U.S. State Required Details on Corporate Diversity
Reuters (05/11/21) DiNapoli, Jessica; Kerber, Ross
Illinois has passed new state requirements that companies identify the gender and race or ethnicity of each board member. Regulators say they want to see fine details such as those provided by Boeing Co. (BA), which specified which directors were women, Asian, and African American. Archer Daniels Midland Co. (ADM) was more generalized, saying its board was 55% diverse. Companies, shareholders, and elected officials will be keeping a close eye on the next steps in Illinois' atypical mandate for director-by-director declarations. Rep. Chris Welch (D-Ill.) proposed what became the 2019 Illinois board diversity reporting law, arguing that "you can't go wrong with more data." "Over time investors want more detail, rather than less," said Morningstar Inc. (MORN) CEO Kunal Kapoor. "Putting sunlight on areas that lacked it has rarely had a poor outcome for investors." Although companies are not penalized for not fully reporting their board diversity, they may do so to avoid criticism by people scrutinizing the information, which began appearing on the Illinois Secretary of State's website last year. Illinois officials in April amended a disclosure form to make more explicit the call for companies to list the self-identified race or ethnicity of each director, and gender. In a March study, University of Illinois professor Richard Benton found 66 of the 74 companies that filed forms since the law was passed supplied enough data to parse out their racial diversity. Non-white people retained about 15% of the average company's boardroom seats, versus their 40% segment of Illinois' population. Yet opposition to disclosures seems low, even among companies with incomplete filings. For example, only two of 15 directors at U.S. Cellular Corp. (USM) listed their race on a form last July, while a company spokeswoman said for a more current filing, "100% of our members have self-identified." Phyllis Lockett at CME Group Inc. (CME) said diversity disclosures should provide a breakdown by race and ethnicity to help identify what groups might be underrepresented. Equilar reports that the S&P 500 listed 9% of directors as Black as of January, up from 8% in August. Hispanics were 4.2%, up from 3.6%, and Asian or Pacific Islanders accounted for 4.5%, up from 4.4%.
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