Diversity on Illinois corporate board shows slow growth, new report finds

Public companies in Illinois are more attuned to the need for gender, racial and ethnic diversity in their boardroom ranks, although progress in those areas is mixed, a study by researchers at the University of Illinois concluded.

The report found that women’s board representation, despite notable gains, falls short of their overall representation in the workforce. Racial and ethnic minorities remain underrepresented, severely so in the case of Latino people, researchers found.

But the report also highlighted greater company awareness of diversity issues. Its findings are based on 97 companies that complied with a state law in 2021 requiring them to report on diversity in their board memberships. It also requires them to summarize any policies to promote diversity on their boards.

The same study was performed for corporate filings in 2020, and it found only 74 firms complying with the law.

Increased compliance bodes well for more progress on diversity in corporate leadership, said Richard Benton, associate professor of sociology at the University of Illinois and a co-author of the report. “Anything companies care about, they measure.”

The state law, enacted in 2019, is focusing corporate attention on inclusion, Benton said. He wrote the report with assistant professor Eunmi Mun. Both are affiliated with U of I’s School of Labor and Employment Relations.

Their review of 2021 filings shows that 80% of the companies listed two or more female directors, compared with 67% in the 2020 filings. In 2021, 50% of companies reported having two or more non-white directors, compared with 35% in 2020.

“Although a handful of firms are leading the way in terms of board diversity, there is still wide variation as many firms maintain unrepresentative boards,” the report said. For example, it said 76% of the companies submitting reports had no directors identifying as Hispanic or Latino, which make up 16% of the total state population.

Black people, making up about 14% of the state’s population, are not included on the boards of 37% of the companies, the report found.

It highlighted policies several companies have adopted to promote diversity, such as Morningstar’s goal of interview teams with a 50-50 gender split for hiring top executives. W.W. Grainger, the report said, uses an executive search firm to ensure diverse candidate slates for open board seats, while Nuveen and Discover Financial Services have supported internal efforts for women’s networking.

Benton said many companies are responding to pro-diversity laws several states have enacted or are considering. “This is a very fast-moving space,” he said. Nasdaq now requires reports on boardroom diversity from its listed companies.

The Illinois law requires an annual report but sets no diversity minimums. It does not apply to private companies or to those that are publicly traded but based outside of Illinois.

Todd Maisch, president and CEO of the Illinois Chamber of Commerce, said companies are concerned the state law could be amended to set standards for board memberships. “Disclosure is fine, but disclosure is very often a predecessor to mandating,” he said.

Speaking for himself and not his members, Maisch said nearly every executive he encounters values diversity in company leadership and the workforce. “They want to be as diverse as possible, but it’s got to make sense for them,” he said. “This is a complex issue. The answers are not simple.”

The report’s findings are similar to a review of board and workplace racial diversity by companies in the Russell 3000 index. Published this year by ISS Corporate Solutions, the analysis found non-white directors on corporate boards are increasing but still at just 17% of the total.

ISS, which monitors corporate governance issues, said there has been an increase in shareholder resolutions dealing with racial diversity.

In an article posted last year by Northwestern University, R. Mark McCareins, clinical professor of business law, commented that while state regulations are a factor, shareholder attention has forced more companies to consider their records on diversity.

“If I’m a public corporation, whether or not I’m currently under state or federal regulation, I’m probably going to be as concerned about what my investor base — and specifically my institutional investors — are thinking about this issue,” he said in the article.

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