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ISS ESG: The Five Tenets of Diversity: Values Create Value

Investors have never been more skeptical of “male, pale, and stale” boards, or the boards composed entirely of male, white, and long-tenured individuals. The addition of age and director skills to these three measures of gender, ethnicity, and tenure rounds out the five tenets of diversity that ISS uses to compare the diversity of board compositions. Market participants recognize that when it comes to boards, the whole is greater than the sum of its parts, and the skills and experiences new nominees bring to the board should be complementary to those of existing board members, not considered in isolation.

Emphasis on board diversity has increased over the last several years, primarily through the lens of gender and ethnicity. In recent years, large investors have made public calls for greater disclosure of diversity characteristics, and the wider public has cast increasing scrutiny on the composition of boards and executive leadership teams across the corporate landscape. 2017 and 2018 experienced a marked uptick in the numbers of new directors that are female or ethnically diverse, and in 2019 non-white male directors earned a majority of new appointments in the U.S. for the first time.

Investors have also shown a preference for more detailed disclosure of director skills and expertise, all of which is captured by the recent diversity enhancements made to ISS Director Data.

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