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Aug 30, 2017

Board picks in contested scenarios are less diverse, study finds

‘Shareholders and directors need to better understand the significant boardroom transformations that occur when activist investors target companies.’
Between 2011 and 2015, just 8.4 percent of nominees put forward by both activists and targeted boards were female
Patrick McGurn, ISS

Shareholder activists’ director picks to join company boards are on average whiter, younger and more likely to be male than their counterparts across the S&P 1500 – and so are the counter-nominees put forward by companies, according to a new study.

Given their short-term focus on change, activists are less likely to nominate women and ethnic or racial minorities, Institutional Shareholder Services (ISS) and the Investor Responsibility Research Center Institute (IRCCi) found in their research of board nominations between 2011 and 2015. But when an activist targets a public company with a candidate or slate of candidates, the company’s own nominations in response are also less diverse than the S&P 1500 averages, the study found.

Between 2011 and 2015, only 8.4 percent of nominees put forward by both activists and the boards they targeted were female. During the same period, the female share of new board appointees in the S&P 1500 rose from 17.1 percent to 24.5 percent, according to the report.  

Only three activist fund firms – Starboard Value, Engaged Capital and Clinton Group – selected a female nominee in more than one contested situation, according to the report. These three firms account for 76.2 percent of the total female nominees by activists between 2011 and 2015. Only one woman, Cynthia Jamison, was selected more than once, both times by Starboard Value during its engagements with Darden Restaurants and Office Depot, the study found. Starboard Value is also one of only two activist funds to have nominated ethnic or racial minorities in more than one board contest during this time – with Icahn Group being the other.

Ninety-five percent of the nominees covered by the study were Caucasian, whereas minority representation in S&P 1500 boardrooms increased from 9.3 percent to 10.1 percent during the period at issue.

‘Shareholders and directors need to better understand the significant boardroom transformations that occur when activist investors target companies,’ ISS special counsel and report co-author Patrick McGurn says in a statement on the report.

This lack of diversity is due, in part, to candidates with financial experience being increasingly favored. ISS and IRCCi define this as someone who has experience of acting as a financial officer, auditor or public accountant, or of overseeing people in that role.

Speaking to Corporate Secretary last month, Jeff Sanders, vice chair and co-managing partner at Heidrick & Struggles’ board and CEO practice, said that only 5 percent of CFOs are ethnically or racially diverse among the Fortune 500 (, 7/13). ‘Boards have to be more creative about how they think about sourcing talent,’ he said.

Despite the lack of gender and ethnicity diversity in their director choices, activists tend to be open to considering directors from a broader age range than the boards they target, according to the study. The average age of nominees put forward by activists was 53 – more than three years younger than the average for nominees put forward by boards.

Just under two thirds (59.8 percent) of activist nominees were in their 50s or 60s, compared to 78.9 percent of boards’ nominees. Activists nominate more candidates in their 30s and 70s, according to the study.

‘Anecdotal media coverage, often fanned by anti-activist communication strategies, still tends to myopically focus on two long-standing dissident nominee stereotypes: the still wet-behind-the-ears 20- or 30-something-year-old hedge fund analyst, and the older, male, over-boarded crony of the fund manager,’ the report’s authors write. ‘These long-standing stereotypes appear to be outdated.’  

Ben Ashwell

Ben Ashwell

Ben Ashwell is the editor at IR Magazine and Corporate Secretary, covering investor relations, governance, risk and compliance. Prior to this, he was the founder and editor of Executive Talent, the global quarterly magazine from the Association of...