Illinois companies escaped a clumsy attempt in Springfield to force them to diversify their boardrooms. But the point of that effort shouldn’t be lost in the dust of the recently concluded legislative session.
An early House bill would have required Illinois companies to have at least one woman, an African American and a Latino on their boards, a provision we opposed. The version now headed to the governor’s desk dropped that mandate. Instead, publicly traded companies in Illinois would be required to report on their websites the demographics of their board and executive ranks. An annual report card on corporate diversity would be published by the University of Illinois.
Consider this a preview of those results: The Tribune examined the 30 top companies by market capitalization in Illinois and found that half had only one African American director. Six — Walgreens, Kraft-Heinz, Mondelez, Arthur Gallagher, IDEX and TransUnion — had none. Half of the boards had no Latinos. Women fared somewhat better after years of efforts to improve gender parity. Most boards had at least three women.
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A lack of representation should raise questions for a company’s stewards and stakeholders. Here are just a few: Is the existing path to that elite table broad enough? Are leaders change-averse and relying on stale networks to fill coveted positions? Is the board in touch with the habits and desires of its customer base? How attractive is the company to top talent who needs to see how high they can rise? What are the costs in the marketplace if these answers are disappointing?
There are reasons change comes slowly. Corporate boards tend to be small and turnover is low. Board members, charged with monitoring performance at the highest levels, aren’t simply widgets to be replaced; they may be valued longtime contributors or introduce expertise in areas with growth potential.
Yet successful companies have found ways to add women and people of color to their ranks, and not because they are forced by lawmakers. Talent is out there, even if those people haven’t been CEOs. Companies need directors with an understanding of technology, e-commerce or other emerging lines of business. Executive search and recruitment consultancy Spencer Stuart reports that women directors often offer much-needed expertise in the tech and consumer sectors.
Board diversity through legislative fiat represents government overreach. What else can be done? Shareholders can demand more women and people of color reach board slates and elect them when given the opportunity. Customers can vote with their dollars. Observers can keep a spotlight on progress. Leaders below the executive suite can develop their own diverse networks and suggest potential candidates. They can also develop programs to ensure that promising leaders are groomed and learn the skills they’ll need to be selected for board opportunities down the road.
Assuming Gov. J.B. Pritzker signs the bill, stakeholders and customers will be more easily able to see who’s at the wheel of our state’s most prominent companies. Excessively homogeneous corporations won’t face the six-figure fines of the original proposal, but sunshine may be more effective.