Most Diverse Boards

When it comes to diverse leadership at the top, there is still progress to be made in corporate America, including the nation’s banks. Board diversity has been a focal point for investor pressure: Asset managers BlackRock and State Street Global Advisors both vote against the directors of boards without female representation. Boards should also be ethnically diverse to represent broader backgrounds, and would be well-served to add younger members—Generation X and older millennials—to understand the needs of today’s consumers and employees.

With this in mind, Bank Director examined the proxy statements of banks above $100 billion in assets (as of year-end 2017) to discover which boards are the most diverse. Each institution was ranked based on the percentage of directors who are female, ethnically diverse or younger—no older than 53 years, the upper age limit for Generation X. The final score reflects the average of each category rank and rewards a balance of these three factors.

It bears saying that the two most diverse bank boards, as determined by this ranking, have consistently scored well in Bank Director’s annual Bank Performance Scorecard.

Fifth Third topped our ranking of board diversity with a membership that is one-third female and one-quarter who are considered ethnically diverse, with one younger director. U.S. Bancorp, which also placed second in Bank Director’s 2018 RankingBanking study, has a board composition that is 29 percent female and 21 percent ethnically diverse. An impressive 29 percent are younger directors.

“We absolutely believe that a well-functioning group of people, like a board, makes better decisions and asks better questions if it is a diverse group,” says Laura Bednarski, general counsel at U.S. Bancorp, who works directly with the board as corporate secretary.

Interviews conducted with the two organizations—Nicholas Akin, who serves as the governance committee chair at Fifth Third, and U.S. Bancorp’s head of diversity and inclusion, Greg Cunningham, as well as Bednarski—reveal an intentional approach to diverse board membership.

First, both recognize the value of diversity, including the board’s ability to better understand customers and employees from an array of backgrounds. “We want the board to represent our customers in many ways,” says Akin.

The makeup of a bank’s leadership team is critical in attracting talented and diverse candidates to drive future performance. Candidates will look at the composition of the board and leadership team, says Cunningham. “Do you have leaders who are diverse, or that look like me?” he says candidates will ask. If the organization lacks that diversity, “if I’m a top-flight candidate, I’m going to look elsewhere.”

Second, these organizations don’t rely on director referrals, which tend to impede board diversity initiatives. Instead, an expansive search for board talent yields diverse director candidates. The search firm used by U.S. Bancorp is instructed to provide the board with a diverse slate of candidates, says Bednarski. The board does not rely on the same firm for every search.

Search firms are also looking beyond current and former CEOs to generate a broader pool of prospective directors. Fifth Third’s board includes three members—all women—who don’t have backgrounds as CEOs: Marsha Williams, a retired chief financial officer with the digital travel company Orbitz Worldwide; Eileen Mallesch, a retired CFO of the property & casualty unit for Nationwide Mutual Insurance Co.; and Katherine Blackburn, the sole Gen X’er on Fifth Third’s board and an executive vice president for the Cincinnati Bengals. Looking beyond the C-suite can yield younger candidates, as well.

Boards are still struggling to add younger perspectives to the mix, and baby boomers still occupy the vast majority of board seats. U.S. Bancorp and Bank of New York Mellon Corp., which came in at no. 4 on this ranking and boasts the highest percentage of younger directors, are rare in their inclusion of younger directors on the board. Of the 18 banks evaluated in this ranking, eight don’t have a single director below the age of 54.

Boards appear to be making greater gains than executive teams when it comes to diversity. Internal initiatives can assist in these efforts. Fifth Third’s Women in Leadership program focuses on more rapidly moving qualified women into leadership positions, including the C-suite. U.S. Bancorp has a highly structured talent management program, and Cunningham says the bank has fielded group discussions with female leaders to better understand their needs.

A positive feedback loop exists between board and executive diversity, as boards rely on executive talent from various industries to comprise their membership. Solve the executive diversity issue, and it’s easier to build more diverse boards. And if a board values diversity, and demonstrates its commitment through the board’s composition, then boards will—directly or indirectly—pressure executives to step up their diversity game.

“Given the focus of the board on diversity and inclusion generally, including among their own membership, it’s my personal view that if management were showing them a slate of potential successors and it were not diverse, that they would be very uncomfortable presenting that to our board,” says Bednarski.

The Ten Most Diverse Boards

Data source: 2018 proxy statements