What’s Keeping More Women From Board Seats: Little Turnover

A stubborn paradox reigns across U.S. boardrooms: Companies are appointing more women to board seats than ever, yet the overall share of female directors is barely budging.

The reason isn’t the pipeline, say recruiters and researchers. It is that board seats rarely become available in the first place.

More than a decade typically goes by before a director leaves a board seat, according to a new study from the Conference Board, a business research group. Examining Russell 3000 companies, which represent the vast majority of U.S.-traded stocks, it found the average director stays in the job for 10.4 years and about a quarter of them step down only after 15 years.

The upshot is that boardrooms remain the preserve of older, mostly white men: Only 10% of Russell 3000 directors are 50 or younger, while about one-fifth are older than 70, according to the Conference Board study. Just half of all Russell 3000 boards made any director changes in 2018, and 20% remain all male.

The data highlight a boardroom convention that has gone largely overlooked as shareholder pressure grows on companies to add more diversity of experience and backgrounds to their boards.

While investors have pressed companies to bring more ethnic minorities onto boards, the more concrete measures have revolved around boosting the number of women. A number of big investors-including State Street Global Advisors and BlackRock Inc. -have pressed boards with no women to change faster, pointing to research that links greater female representation on boards with better shareholder returns. In some cases, they have withheld proxy votes for some directors standing for re-election on all-male boards.

California, meanwhile, became the first state last year to mandate women on boards, requiring companies based there to have at least one female board director by the end of 2019, and at least two by 2021.

Yet, while shareholder proposals to boost board diversity are on the rise, there hasn’t been as much momentum around term limits and other systematic approaches to speeding up turnover, said Matteo Tonello, the Conference Board’s managing director for corporate governance research. In crafting the California mandate, state legislators sidestepped the issue with a provision that allows companies to add new board seats to make way for women if they don’t want to displace incumbent directors.

“In the last two decades, there’s been a sweeping revolution in the field of corporate governance,” said Mr. Tonello, pointing to laws such as the Sarbanes-Oxley Act and the rise of more vocal and activist shareholders. “Yet if you look at the composition of the board, at its core, it remains the same at many public companies and quite resistant to change.”

Concerned that longtime directors may eventually lose their objectivity or become complacent, big shareholders such as the California Public Employees’ Retirement System say they will scrutinize boards with directors that have been there for more than 12 years.

Activist investors also have targeted some boards with long-tenured directors. In March, Permit Capital Enterprise Fund LP and Hestia Capital Partners LP threatened GameStop Corp. with a proxy fight if it didn’t overhaul its board, which it called stale. Including a director appointed last August, the average tenure of its board at the time was nearly 10 years. The company has said that, as part of a deal with the investors, it will appoint two new directors shortly, in addition to Chief Executive George Sherman, who was appointed CEO and joined the board earlier in April.

A similar saga played out at Yelp Inc. this year after SQN Investors LP criticized the online-review company’s board for adding only one new independent director since 2012. Yelp responded by announcing steps to cut costs and replaced three directors on its board in March.

Shoe brand Skechers USA Inc., whose board is all male, faces a shareholder proposal requesting it report annually what steps it is taking to diversify its board. The average tenure of its five independent directors exceeds 13 years. The Skechers board is urging shareholders to vote against the proposal, arguing it would impose unnecessary costs and that it considers diversity in assessing board candidates.

Many boards and investors regard automatic term limits as too blunt of an approach that risks shedding valuable corporate knowledge and upsetting a board’s dynamic. “Whenever you change a board member it can be quite disruptive,” said Robin Ferracone, CEO of Farient Advisors, a corporate governance and executive pay consulting firm.

A side effect, though, is that women-and new blood, in general-are only slowly changing the makeup of boards.

Beth Stewart, whose firm Trewstar Corporate Board Services specializes in placing qualified women on boards, said board decision makers frequently tell her they don’t have more seats to fill because they are unwilling to ask directors who no longer have relevant skill sets to retire. “In fact, they will say, they are waiting for [the directors] to let them know whether they’re going to stand for re-election,” she said.

The overall percentage of women directors climbed 2 percentage points to 18.5% in 2018, even as 957 women were appointed to board seats at Russell 3000 companies, according to Equilar, a research firm that gathers data on executives and boards. That compares to 677 added in 2017 and 590 in 2016.

By Vanessa Fuhrmans