BOSTON African-Americans have become a shrinking presence in the boardrooms of the biggest U.S. companies in recent years, setting back a push by pension funds for greater diversity.
African-Americans, who make up about 13 percent of the U.S. population, account for 8.6 percent of the directors on the boards of the largest 200 companies by revenue in the S&P 500 in 2015, down from 9.6 percent in 2010, according to the annual Board Index study by Spencer Stuart, one of the largest executive search firms. The figure was 9 percent in 2006, the first year the firm reported the measure.
Reasons for the decline include the desire of boards to appoint members with particular qualifications such as cybersecurity expertise or a background in international business, headhunters said. Some African-American investors also said they worry the increasing influence of activist hedge funds – where the presence of blacks is minimal - in appointing board members is partly to blame.
"We're left out of these most lucrative parts of the economy," said John Rogers, chief executive of Ariel Investments, which manages $9.6 billion, and who sits on the boards of fast-food giant McDonald's Corp and electricity and natural gas utility Exelon Corp.
Rogers, 57, who is also a co-founder of the Black Corporate Directors Conference, a networking event, said he is frustrated by the lack of minority representation in some industries such as at big technology firms, in contrast to other companies like McDonald's itself, which counts three African-Americans among its fourteen directors.
"It's a tale of two cities," he said.
The dip in black boardroom representation comes at a time when many U.S. cities and college campuses have been split apart by protests over alleged discrimination and the deaths of black people in clashes with the police.
U.S. boardrooms are not the only setting that remains largely white and male, which could limit the talent pool recruiters might draw from. While sitting CEOs are a popular choice for boards, among the top 200 companies, only four, or two percent, were led by blacks, according to the Spencer Stuart data.
Among partners at big U.S. law firms, only 1.8 percent are black, according to a study released last month by the National Association for Law Placement. And just 5.9 percent of U.S. college presidents were African American in 2011, the most recent year studied by the American Council on Education.
Some counter there is still plenty of talent available.
"The pool of qualified African-American candidates for U.S. boardrooms is still quite deep and should not be a limit," said Kurt Schmoke, an African-American who is president of the University of Baltimore and a director of Legg Mason Inc and McGraw Hill Financial.
Schmoke said he has urged executive search firms to add minorities to their databases. "Sometimes you have to remind them there are other people out there."
Indeed, some big companies may be casting their net more broadly than they have in the past.
Technology leaders Apple Inc, HP Inc and Hewlett Packard Enterprise have each named new black directors recently.
None are currently CEOs at other big companies, a traditional criteria for board recruiters that may have limited the number of minority board candidates available, said Mary Bush, an African-American director at companies including Discover Financial Services and T. Rowe Price Group.
Such changes may eventually improve the representation of blacks and other minorities in boardrooms - if board leaders stay focused on the topic, Bush said. "When you are coming from behind, which we were, there's definitely a long way to go," she said.
However, there is some evidence that big activist funds tend to run slates of mainly white men when they are fighting for board seats. Among the ten campaigns against the largest companies that have gone to a shareholder vote since 2013 identified by financial services group Houlihan Lokey, activists nominated 50 directors for board seats. Of that group, about 40 were white men and 6 were white women, according to a Reuters analysis of securities filings, company websites, and checks with individuals.
Among the nominees was just one African-American, Lionel Nowell, part of the Starboard Value slate that won seats at Darden Restaurants last year. Nowell, now a Darden director and a former PepsiCo Inc executive, is also a director at Bank of America Corp, where a representative said he did not wish to comment for this article.
Representatives for Starboard Value did not respond to questions about its slate, which also accounted for four of the six women in the group.
Among other big activists that brought the proxy contests, representatives for Trian Fund Management and Jana Partners declined to comment.
Representatives for Elliott Management did not return messages Mitch Ackles, president of the Hedge Fund Association trade group, said activist funds may be more focused on shaking up corporate boards to improve shareholder returns than on diversity, perhaps because the hedge fund industry is largely white and male.
But things are changing, as bigger institutional investors like pension funds that invest with hedge funds press for more diversity, he said.
WOMEN MAKE GAINS
The decline in black representation stands in contrast to the gains, albeit modest, made by other under-represented groups over the same period, including women, Latinos and Asians.
Some public sector pension fund leaders, including New York City Comptroller Scott Stringer and officials of California Public Employees' Retirement System, have argued for years that boardrooms should more diverse. They have cited studies showing diversity can help companies' financial performance.
The continuing lack of diversity is a reason Stringer has urged companies to make it easier for small investors to run director candidates, a change known as "proxy access," Stringer said in an interview.
"If boards don't move toward diversity themselves, then proxy access enables shareholders to do this for them," he said.
Change at boardrooms may be slow because companies do not have many chances to bring in fresh faces, with the average director staying on an S&P 500 board for 8.5 years, according to Spencer Stuart, a rate that has been roughly stable for the past five years.
Nor is there a strong outlook for increased black representation. Only about 7 percent of newly-named directors at S&P 500 companies this year have been black, the same as in 2014, the only other year in which such data is available, according to Institutional Shareholder Services.
Headhunters said that companies try to achieve many of their priorities, including diversity, with each new appointment, but are bound to fail to meet all of them given new demands.
For instance, Julie Daum, head of Spencer Stuart's North American board practice, said the more recent demand for directors with experience in areas like cybersecurity, means that "boards have many things they need to accomplish with each addition."
The drive for some forms of diversity, such as adding women to boards, can hold back gains for other groups, said Ronald Parker, president of The Executive Leadership Council, which advocates for the promotion of black leaders. Also, senior African-American executives may not have as much experience in particular areas.
Those trends mean companies need to look harder and "move beyond their normal circles to find talent" who could serve as board members, he said.
AFTER BEN CARSON
An example of how the various pressures on boards can play out is the case of Ben Carson, an African-American and retired neurosurgeon who's also running for U.S. president.
To focus on his presidential campaign, earlier this year Carson quit the boards of food company Kellogg Co and retailer Costco Wholesale Corp, where he had served since the 1990s. Since then, each company named two new directors each, all of whom are white, including one woman each.
Costco named two directors who have experience in communications - Maggie Wilderotter, executive chairman of Frontier Communications, and John Stanton, a wireless industry veteran who was CEO of Western Wireless Corp. Costco Chairman Jeff Brotman said both of the directors were tapped before Carson stepped down. While he declined to discuss the selections in detail, he said via e-mail that the company has and is "taking steps to recruit under-represented minorities to our Board."
Kellogg named directors with international experience in consumer goods - Carolyn Tastad, group president of Procter & Gamble North America, and Noel Wallace, president of Colgate-Palmolive Latin America.
Kellogg Chairman and CEO John Bryant said in an e-mailed statement that the company has "a very diverse board with African American, Hispanic and International representation." The company's 14-member board does include six women. One of them is also the board's only African-American, La June Montgomery Tabron.