This article originally appeared in FA Magazine on May 11.

Do efforts to bring greater diversity to company boards still matter? Some advocates for greater equality in corporations say investors should turn their attention away from “counting women and people of color” to addressing problems that directly affect people’s lives, such as sexual harassment, pay disparities and work/life balance.

But it would be a mistake to divorce the enduring gaps in diversity on corporate boards from broader concerns facing the workplace. As of 2017, 22 percent of board seats were held by women, an increase of only 5 percent over the past 10 years, while women comprise only 6.2 percent of S&P 500 CEOs. 17 percent of board seats are held by people of color (African-American, Hispanic/Latino, or Asian), only a slight increase from 15 percent in 2004. The proportion of non-white CEOs is actually declining.

This is not simply a concern for those who aspire to occupy seats on corporate boards. Companies that draw leadership from a narrow talent pool may be poorly equipped to solve emerging problems of concern for their workforces. Boards that lack diverse perspectives are prone to “group think” or blind spots on issues outside of their members’ experience.

Many companies have claimed that while they were open to women and people of color, they could not find qualified candidates—often reflecting a narrow set of criteria, such as having been a CEO in a related field. Companies that expand their board search criteria to include a range of backgrounds also discover talented and experienced women and people of color. And of course, women and people of color may bring personal experiences that make them more aware of the concerns of an increasingly diverse workforce.

Many larger, established companies now have diverse boards. For those that do not, the problem may not be an unwillingness to consider non-traditional board candidates. Over half of new independent board members are women or members of underrepresented groups. The slow pace of change more likely results from low turnover: in 2017, approximately half of S&P 500 companies added no new board members. While many individual directors continue to bring valuable insights and institutional memory for many years, failing to bring in new talent creates risks that skills grow outdated and that emerging issues go unrecognized. Higher turnover would create opportunities to refresh the board with new perspectives.

To address this, good governance advocates are calling on companies to adopt mechanisms to increase board turnover, such as term limits and more stringent evaluation of director performance. Some investors are also asking boards to explain how the mix of skills and backgrounds, including demographic diversity, positions their company to meet the challenges facing it.

The Role Of Investors

Important emerging social concerns, including sexual harassment, pay disparities and gaps in representation, are also matters of corporate governance. Corporate leadership that responds effectively to the growing demands for fairness and equality will be at an advantage in attracting and getting the most out of talent. Through thoughtful proxy voting and corporate engagement, investors can encourage diverse, continually refreshed boards and management teams that will be best positioned to provide this kind of leadership.

First, investors should use their votes to signal concerns about board diversity. Voting against entire boards that lacks diversity is one recent trend that sends a strong message—but can be disruptive to the smooth running of a company. Investors can also vote against members of the nominating and governance committee or just the chair of this committee. Investors can also support shareholder proposals that call for greater diversity on the board or at all levels of the company.

Another approach is to focus engagement with companies on policies and practices that are likely to increase representation and improve corporate governance. Some questions to consider include:

  1. How does the board ensure it is choosing the most qualified directors from the widest possible pool of talent, including women, people of color, and individuals with the widest possible range of skill sets and backgrounds?
  2. Why does the board believe that the current composition of directors possesses the right skills and experiences to meet the challenges facing the company today and into the future?  What gaps exist?
  3. How does the board provide for its continual refreshment with outside perspectives and allow for the replacement of directors who are underperforming or whose skills are no longer optimal to meet the company’s needs?

What Asset Owners Can Do

Asset owners who engage asset managers rather than investing directly can also get involved. Those with sufficient resources may choose to bring proxy voting and shareholder engagement in house. Others with separately managed accounts may establish proxy voting guidelines for managers who are voting on their behalf. All can raise questions with their asset managers about how issues of diversity are addressed through portfolio selection, proxy voting and corporate monitoring, and even use these as part of the overall criteria for manager selection and retention.