Corporate Governance

Diversity on the Board of Directors and the Pool of Qualified Candidates

By J Robert Brown Jr.

We are on the mailing list for the memos produced by Wachtell Lipton and they always make for interesting reading.  One of the more recent ones was titled "director pay."  It was, essentially, a call for increased pay for directors.  ("levels of director compensation have not kept pace with the realities of the current marketplace."). 

The increase is necessary to help retain a qualified board.  As the memorandum explained:

• An engaged, skilled and thoughtful board of directors adds immense value to a corporation. It is more difficult than ever to recruit and retain directors who meet the requirements – including the increased legal and regulatory requirements imposed within the past ten years – for experience, expertise, diversity, independence, leadership, collegiality and character. Competition for the best candidates is intense, particularly in view of the fact that the ideal director candidate is often a successful, independent and prominent person who does not need the exposure to the obligations that public company directorship entails.

Another way to address the need for a qualified board, other than through pay raises, however, is to increase the pool of candidates.  How might that occur? 

As we have noted often on this Blog, women and people of color make up between 10 and 15% of the directors of public companies.  The pool could be expanded by including more qualified women and people of color.  Are there candidates out there?  At least one commissioner on the SEC says there are.  As Commissioner Aguilar recently stated:

• I am convinced that if you're searching broadly for good candidates, you're going to find a lot of capable women, you're going to find a lot of capable Latinos, you're going to find a lot of capable African Americans, a lot of capable Asians, a lot of capable Native Americans. And that's not reflecting on the numbers that we're seeing in the board of directors of public companies.

Pay raises might work but so will a more representative board.  And it just might make better decisions and provide the CEO with better advice. 

Full post as published by The Race to the Bottom on January 22, 2011 (boomark / email).