THERE ARE the 1 percenters, and then there are members of corporate boards, who represent something approaching 1 percent of the 1 percent. This fortunate subgroup is generously paid for time spent overseeing public companies — a Globe analysis found that board pay has almost doubled since 2000 at the 200 largest US public companies, with some directors earning million-dollar paychecks.
And as a Globe three-part series recently explored, this group remains stubbornly male and white. This needs to change.
Unfortunately, many corporate boards in Massachusetts have resisted more integration, reflecting the insular nature of power in the executive suite. This has given rise to “serial members,” directors who simultaneously serve on many boards, with bloated compensation as the norm.
For years, various groups have shone a spotlight on the problem, yet the needle has moved very little. According to a Globe survey of publicly traded companies in Massachusetts, 80 percent of directors were white men, while only 7 percent of board seats were occupied by minorities. The Boston Club, a local women’s leadership group that tracks corporate gender representation, reported in 2003 that 9 percent of board members in the largest 100 public companies were female. A little more than a decade later, the number is only 16 percent. To make matters worse, friends of management sometimes end up at the top of the list of candidates, skewing diversity numbers even further.
To break the logjam, government must send an explicit message to companies that it is simply unacceptable to field a board of directors without adequate representation from women and minorities.
State Treasurer Deborah Goldberg announced recently that her office intends to use the Commonwealth’s $61 billion pension fund to make a stand on corporate diversity. PRIM, as the entity that holds the fund is known, owns stock in nearly 10,000 companies and, as a shareholder, can vote on board appointments and corporate policies. Goldberg proposed that the PRIM board oppose nominees to corporate boards unless at least a quarter of their membership is made up of women and people of color. Goldberg’s policy, approved in April, should become the norm for institutional investors as well.
The business case for diversity is strong. Studies show that companies with more diverse boards tend to be more profitable. “What corporations need to do, and are starting to do, is get out of the traditional club, the old-boys club,” Mark Rogers, the founder and CEO of BoardProspects, a board recruitment network, told the Globe. Which is what Avid Technology Inc., a company that makes audio and video software and is based in Burlington, set out to do. Avid’s CEO and chairman, himself Latino, describes a simple strategy: It takes a conscious effort. Every time there’s a seat open on the board, the company demands that the recruitment firm include diverse candidates. Of the seven directors on Avid’s board, five are women, people of color, or both.
Steve Mader, a vice chairman and managing director at the Boston office of the executive recruiting firm Korn Ferry, has another idea: Boards should install tenure limits. “There’s value in continuity,” he told the Globe, “but if you’ve served on a board for a dozen years, that’s probably long enough.” And that, he said, would free up board seats for other candidates.
The job of a board of directors is ultimately to promote the financial health and success of the company. And as such, the board should reflect the world it serves. Only ongoing pressure from government, shareholders, and stakeholders will bring overdue change.