By Isla Binnie
NEW YORK (Reuters) - In the aftermath of George Floyd's killing in 2020, investor Mellody Hobson recalls frequent calls from directors at Fortune 500 companies for references to diverse candidates for boards. Now, she says, it's "very sporadic."
"During the George Floyd days there were dozens and dozens of them," said Hobson, the co-CEO of Ariel Investments who also serves on the boards of JPMorganN> and Starbucks (NASDAQ:SBUX). "Those requests have dramatically dropped."
Over the past year, Reuters and other media have reported that a backlash against diversity, equity and inclusion (DEI) policies by some conservative activists has sapped corporate enthusiasm for them.
Interviews with corporate directors and advisers as well as a recent study on corporate boards paint a stark picture of how pronounced the fallout of that backlash has been.
Among Russell 3000 companies, the number of new Black directors fell to 12% in 2024 from 26% two years ago, according to the study by business research group the Conference Board and data firm ESGAUGE. At the same time, the number of new white directors bounced back to 69%, up from historic lows of 52% in 2022.
Directors and board advisers said conservative backlash through litigation and other means had pushed DEI policies down the priority list for companies, often in subtle ways -- a trend that some experts said could accelerate under the incoming administration of Donald Trump.
"It is not a non-issue, it's just not THE issue," Hobson said, referring to how companies were now thinking about diversity on their boards. Over the long term, "we will continue to move in the right direction," she said.
One recruiter, for example, said many companies no longer made diverse candidate slates a top requirement in director searches.
"A couple of years ago more searches had diversity as number one or two criterion than have it there now," said Richard Fields, head of the board effectiveness practice at search firm Russell Reynolds.
DEI policies got a boost after Floyd's murder by a white police officer sparked national outcry and energized the Black Lives Matter movement.
Investors and their advisory firms used their shareholder power to push companies to include people of different backgrounds in senior roles, and companies hired more diverse board members.
The efforts led to more gender and racial diversity among directors of large U.S. companies than ever before. Some 12% of directors on S&P 500 boards are now Black.
DIVERSE BOARD EQUALS 'BETTER BUSINESS'
The distribution still lags societal makeup. U.S. Census Bureau data show 14% of working age adults are Black.
The gap widens for a broader set of companies. Only 8% of the directors at Russell 3000 companies are Black, according to the Conference Board.
DEI proponents worry the pushback could hurt efforts to address longstanding inequities and underrepresentation of diverse communities to the detriment of business interests.
"It has been repeatedly shown that building a diverse board will ultimately ladder up to better business," said Lisa Davis, a managing director at advisory firm Teneo.
The decrease in diverse new hires to corporate boards has a significant correlation with the cultural shift, said Andrew Jones, head of ESG (environmental, social issues, and corporate governance) at the Conference Board.
"In 2020 there was initial momentum when the death of George Floyd was followed by social unrest and corporate DEI was at its height. Then there was a lot of legal and political scrutiny following the Supreme Court decision last year," Jones said.
That decision effectively prohibited policies long used to increase the number of under-represented minorities at American universities.
"I don't think its overt racism, although it does exist, but perhaps people feeling less of a need, maybe less pressure on this issue," Hobson said.
Reflecting on fewer requests for references to diverse board candidates, Hobson said: "I think they were responding to the marketplace with the outreach, and the marketplace is not as demanding on these issues right now."