What’s next? Redhead quotas on corporate boards?
The predictable resistance to self-identification of LGBTQ+ Corporate Board Members.

As long as efforts to diversify corporate boards, including on the basis of sexual orientation, were aspirational, many were most willing to entertain the possibility of board diversity. However, as these efforts could become mandatory with the passing of AB979 in California in September or the submission of the now famous NASDAQ proposal to the Securities and Exchange Commission (SEC) two weeks ago, a more articulate resistance has developed.

Indeed, NASDAQ along with The Equilar Diversity Network, of which Out Leadership’s Quorum is now a member, announced in a SEC filing that it wants companies it lists (about 3,300 companies) to have at least two “Diverse” directors. NASDAQ defined this as “one director who self-identifies as female,” and “one who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+.

While many welcomed the move, the NASDAQ announcement also unleashed a lot of questions and, at times downward hostility and derision. The most common dismissive remark I heard was: “after LGBTQ+ people, other groups will also demand to be represented, where does it stop? Range Rover owners, left-handed people, redheads?”

This resistance was best encapsulated in the Wall Street Journal editorials “The Woke Nasdaq” (Dec. 2) and “Nasdaq vs. Warren Buffett” (Dec. 3) accusing NASDAQ of “virtue signaling”, “groupthink” and “imposing quotas” among other things.

But we also heard several substantive arguments against considering LGBTQ+ representation in individual conversations I held in just the last week:

  • From a prominent search firm executive who identifies as LGBTQ+: “self-identification is unnecessary since the proportion of LGBTQ+ Board members will gradually increase in a natural way” and “Board members will refuse to self-identify”;
  • From a D&I executive in a large software company: “We won’t be affected by AB979 requirements anyway as we are moving our headquarters out of California”;
  • From a corporate governance newsletter editor: “sexual orientation and gender identity never mattered, Board searches focus exclusively on skills and talent”.

In each case my response was: “clearly good intentions are not enough given how abysmal LGBTQ+ representation on Board when our Quorum initiative celebrates its 5th year of advocacy”. As a reminder, recent research developed with our partner Ropes & Gray showed that out of 5670 Fortune 500 Board seats, 24 are occupied by openly LGBTQ+ people (25 with the recent nomination of Quorum member Sander van’t Noordende on AECOM’s corporate Board last week).

The pushback also illustrated an American distaste for quotas, the classic issue of merit being of major concern. There is a fear that less qualified people will make it to the Board, since quotas could lead to selection based not on merit but solely on sexual orientation and gender identity. In addition, because of lack of representation in the C-suite (the “lavender ceiling” I mentioned in past articles), the main pathway to Board roles, some were fearful that a search for LGBTQ+ candidates would mean the threshold would have to be lowered. And maybe less expressed but still real, there was the legitimate fear that competent white, middle-aged men might be ‘disfavored’ to make room for LGBTQ+ people.

The reality is that the Corporate Governance world is rather conservative which has been shielded from exposure to the reality of LGBTQ+ people. Most corporate secretaries I speak to are Ivy League educated straight white men in their fifties. Our job is to articulate clearly why structural bottlenecks to professional success that LGBTQ+ people face are serious and in no way comparable to what Range Rover owners, left-handed people and redheads might experience.

The questions we at Out Leadership are getting from headhunters, General Counsels and other stakeholders in the corporate governance space in the wake of the NASDAQ announcement are quite reassuring actually. In that they illustrate a tremendous need for a better understanding of the LGBTQ+ experience in the corporate world, and are not driven by bigotry. It is incumbant upon us to clearly explain the many reasons why LGBTQ+ representation on Boards matters and the relatively easy ways it could improve. This means Out Leadership’s work in 2021 is cut out for us.

Where would LGBTQ+ Directors self-identify? D&O Questionnaires and Proxys

In the past several weeks, Out Leadership has been reaching out to hundreds of corporate secretaries asking them if they would voluntarily collect and report information on the sexual orientation and gender identity of their Board Members.

The timing, ahead of the 2021 “Proxy season”, is important. Most US companies have their fiscal year ends on December 31, and their annual meetings within five or six months after that. Proxy season runs from late April through early June, with peak week in May. Proxies typically come out about six weeks before the meeting, so you will start seeing a lot of filings beginning in mid-March. Ahead of these filings, companies typically send in January a D&O (Directors & Officers) questionnaire to their Board Members. You can see an example of a D&O Questionnaire here from one of our member firms, Morgan Lewis.

In partnership with a number of our member firms, Out Leadership has developed a simple turnkey solution to self-identification to include a question on the sexual orientation and gender identity in that questionnaire as well as report on the findings in the filings. This is particularly useful to companies as they often have doubts on the terminology to be used particularly when it comes to gender identity.

Out Leadership’s experience with employee’s self-identification

While many Corporate Secretaries indicated to us they would consider our request, some also informally told us they were baffled by it “isn’t it inappropriate or illegal to ask sexual orientation and gender identity”, and “Board members will not self-identify” echoing the feelings expressed in some mainstream media.

Interestingly enough, Out Leadership experienced the exact same pushback when advocating globally for employee’s self-identification in the early 2000s. Our response remains the same:

“Be transparent and respectful. Inform people of what you want to do and why, and then stick to it. Make sure that it is optional and no person suffers or thinks they will suffer any form of harm, distress or discrimination by participating in LGBT+ self-ID. And when you have the data, make sure you protect this data.”

We identified Self-ID for LGBT+ employees as a strategic priority for our diversity and inclusion efforts at the beginning of the 2000s (see our report Visibility Counts). We believe that investing in Self-ID has had, and will continue to have, a number of benefits for companies whether it is at the employee or Directors levels. First, it communicates to employees who are LGBT+ that our member companies know that they are here, that they are welcome in the organization, and that management wants to understand how their identity impacts their experience of working here. Additionally, by better understanding the demographic makeup of employees, companies make better strategic decisions in terms of recruitment and development and continue to deliver on their commitment to create inclusive organizations where people from diverse backgrounds are able to reach their potential and contribute to decisions.

Many forward-thinking enterprises began collecting sexual orientation data in some markets in the mid-2000s, and many of those have subsequently expanded their processes to cover more markets and to include gender identity. We know, however, that many large, sophisticated multinational organizations currently do not collect this information—in part because of the sensitivity of the subject matter, and in part because of perceived legal restrictions and operational complexity.

The goal of my outreach to corporate secretaries is to say: “this is possible, easy and a game-changer”.

LGBT+ self-identification is an important, fast-growing, but insufficiently understood practice that enables LGBT+ employees, as members of an invisible minority within the workforce, to raise their hands to be counted.

Why does representation on the Board matter?

A board of directors is an elected group of individuals that represent shareholders. The board is a governing body that typically meets several times of year – sometimes more – to set policies for corporate management and oversight. Every public company and non-profit must have a Board.

Because Boards deal with strategy and Governance, at Out Leadership, we strongly believe it is crucial for LGBTQ people that they start being represented on Corporate Boards. In fact, there are many relevant themes discussed by Boards today such as artificial intelligence which will have a gigantic impact on the LGBTQ community in the future. A certain number or percentage of LGBTQ+ in decision-making bodies is necessary for the promotion of LGBTQ+-sensitive decisions. It is as simple as that.

It is not only a question of social justice and fairness but it is mostly about ensuring that we are shaping a future that takes LGBTQ+ needs in consideration. In addition, having a diverse perspective can lead to better outcomes (see my previous article on whether decisions would be different if LGBT people were adequately represented in Politics, Boardrooms, Sr. Management, or International Organizations).

So what’s next?

Independently of regulations and mandates, Out Leadership’s Quorum – the only database of aspiring Board Members which have agreed to be tagged as LGBTQ+ – will continue to collect profiles of talented and board-ready LGBTQ+ candidates and offer them to search teams and nominating and governance committees. We will also work with the talent in our database to ensure they position themselves to get these Board seats through networking, acquiring skills and marketing their profiles.

Whether our efforts will result in an increase in the percentage of LGBTQ+ Board members is dependent on many factors, such as whether companies are willing to broaden their requirements (today they mostly rely on CEO, CFO and existing Board members), whether they will implement our self-ID suggestions and whether search teams and NomGov Committees will respond to our outreach.

As a first step in February, we will host the first of its kind four day virtual Quorum summit addressing corporate board diversity. The Summit will include 6 different sessions ranging from a whole host of themes and discussion points related to corporate board diversity. We hope you can join us so we make sure 2021 is the year LGBTQ+ people start getting their fair share of Board seats.

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