Diversity in Corporate Boardrooms and C-Suites — Part 1
Written by Gwanygha’a Gana, Kevin Nguenkam and Cedric Foudjet — June 17, 2020
Earlier this year David Solomon, CEO of Goldman Sachs said that starting July 1st, Goldman will not take any company public unless it has at least one diverse director on its board. This move garnered a lot of press and praise for Mr. Solomon and Goldman, which might make some wonder if the move was little more than opportunistic marketing. No matter what you believe, it is hard to disagree that such a move from a powerful firm like Goldman is sure to send shock waves across Corporate America. In light of recent protests for racial justice in America and beyond, many more CEO's, business leaders and everyday white Americans have voiced their empathy for the pain in the black community and expressed a desire to do something to help. It has been great to see business leaders condemn systemic inequities, denounce racism and empathize with the deaths of so many black people at the hands of the police. While speaking out is a good start, we believe it is time for corporate leaders to:
- Publish the Diversity, Equity and Inclusion (DEI) metrics for their organizations quarterly
- Immediately implement actionable steps to diversify their senior leadership teams and boards
We know the data is bad, but yes — we still want to see it!
Current US demographic data can serve as a benchmark for what equity may look like in C-suites and corporate boardrooms. Recent data from the Bureau of Labor Statistics, shows that the US workforce is 77% White, 17.6% Hispanic/Latino, 12.3% Black, 6.5% Asian. However, based on our analysis of Fortune 50 companies, only 18% come anywhere close to these ratios on their senior executive teams. One often used excuse has been that these companies can’t find enough qualified diverse candidates to fill these coveted C-suite seats. Frankly that’s false, because there is an abundance of qualified Black, Hispanic and Asian talent out there. If we could put a man on the moon in 1969, then surely companies can hire qualified Black, Hispanic and Asian candidates into their exclusive C-suites and corporate boards.
Corporations and Wall Street meticulously over-analyze financial performance metrics. P&Ls, ROIs and KPIs are acronyms we know all too well. They go to great lengths to hire, train and promote talent in the quest for double-digit growth. But how does diversity overlay with financial performance? According to Mckinsey, in the United States, for every 10% increase in the racial and ethnic diversity of senior executive teams, earnings before interest and taxes (EBIT) rises 0.8%.
We looked at the Top 50 companies according to Fortune, to see where we stand today among senior executives and company boards. Our research shows the following:
- Across the companies on the list, with a total of 919 Executives, 773 (84%) are White, 67 (7.3%) are Asian, 50 (5.5%) are Black, and 25 (3%) are Hispanic
- Women represent 26.4% of these executive teams. Of those, 83% are White, 9.4% are Black, 5.3% are Asian and 2% are Hispanic
- Of the 564 board members we looked at, 468 (83%) are White, 62 (11%) are Black, 20 (3.5%) are Asian and 14 (2.5%) are Hispanic
- The companies with the “most diverse” executive teams were: Walgreens, Home Depot, Lowe’s, Metlife and P&G. Home Depot also appeared on our “most diverse” board of directors list.
- The companies with the “least diverse” executive teams were: Amazon, Exxon Mobil, Dell Technologies, JP Morgan, Valero Energy, Raytheon, Phillips 66, Kroger and CVS Health. Dell Technologies and Phillips 66 appeared on both our least diverse executive teams and board lists.
Given the current racial composition of senior leadership in Corporate America as shown in Fig 3, we have a long way to get to equity. We believe that closing this equity gap is not just another feel-good initiative for mostly White business leaders but a business imperative. In our analysis, we looked at 22 companies across the Fortune 50 group from 11 different industries and assessed their financial performance between 2015 and 2020. The most diverse companies in our sample saw an average growth in earning before interest, taxes, depreciation and amortization (EBITDA) of +23.5% and an average growth in their stock price of +183.98%. Conversely, the least diverse companies saw an average growth in EBITDA of -2.74% and an average growth in their stock price of +41.27%.
Corporate America thrives on developing strategies to create shareholder value. We are not implying that companies that are less diverse do not experience positive growth. In fact our data suggests that many of these companies grew over the past five years. However, the data also strongly suggests that companies that are more diverse grow at a faster rate. So, we challenge every CEO to think about how much money they are leaving on the table by not taking this issue seriously. In the figure below, We illustrate what a 5–20 year shift might look like if companies made progress in this dimension.
It is clear we have a problem in Corporate America but where do we go from here? We believe visibility will drive accountability. DEI metrics are step 1 on this journey; just like pay data has been step 1 in the journey to address inequities in gender pay. Our goal is to challenge every business leader to be — brave and bold, confident and committed, determined and decisive — in the pursuit of racial justice in corporate boardrooms and executive suites. The deaths of Philando Castille, Trayvon Martin, Ahmaud Arbery, George Floyd, Tony McDade, Breonna Taylor, Rayshard Brooks and the many more before them have made this an urgent imperative. We hope to go beyond data and offer practical action steps companies can take. This will be the focus of our next article.
Methodology:
Identifying racial distribution of senior leadership teams of boards of Fortune 50 companies:
We ploughed through the executive teams and boards to identify the race of each individual using publicly available information (Company profiles, LinkedIn, Wikipedia, News Articles). Senior leadership team in this assessment includes executives who hold a Senior Vice President title and above. We categorized our data into four racial groups namely; White, Black, Asian and Hispanic, based on referencing the Bureau of Labor Statistics . We then calculated the percent composition of each racial group for each of the 50 companies in our data set. Companies with a higher composition of white executives compared to their peers were considered to be less diverse and vice versa. Our analysis showed that only 18% of companies had a white racial majority less than 77%, a number which represents the racial composition of white people in the US labor force.
Financial Analysis:
We assessed 22 of the Fortune 50 companies across 11 industries ranging from Aerospace to retail. We grouped these companies into two sets of 11 each namely least diverse and most diverse. For each company, we recorded their financial performance between 2015–2020 by looking at two sets of metrics; earnings before interest, taxes, depreciation and amortization (EBITDA) and stock price. We then calculated the percentage growth from 2015–2020 for each company across those two metrics. Finally, we calculated the average growth between 2015–2020 for the least and most diverse companies respectively across the two metrics above. The latter is what we have reported in this article.
**We appreciate and welcome corrections if and where there are errors.
**Estimates for the above race groups from the Bureau of Labor Statistics (White, Black or African American, and Asian) do not sum to totals because data are not presented for all races. Persons whose ethnicity is identified as Hispanic or Latino may be of any race. Updated population controls are introduced annually with the release of January data by the Bureau.
