Publicly traded companies like Adidas and Gap, which distribute their ownership amongst public shareholders via the stock exchange, have a board of directors. Susan Scafidi, the founder of Fordham’s Fashion Law Institute, describes the board as a management club that makes overarching decisions for a company. West asking for a board seat publicly is new for an artist or celebrity, who companies typically use as a face or creative partner. These artists funnel money into brands and make them more popular, but they have little to no control over how that company operates and who it hires.
“Kanye's request is unusual and bold, but it signifies a deep understanding of where the power really lies,” says Scafidi. “It's not about just licensing your name and receiving some compensation, it's about becoming an owner and a decision maker. And those things are very important because if you look at most companies, it's like looking at a snapshot of a snow covered mountain. The higher you go, the whiter it gets.”
You get an idea of how non-diverse boards are from the IG page Show The Boardroom, and Adidas and Gap are no exception to that. Adidas’ supervisory board is all white, with the exception of Jing Urlrich, who is Asian, and Gap also doesn’t have any Black board directors. The only person of color is Sonia Syngal, Gap’s CEO, who is Indian.
Because of this, in September a shareholder filed a shareholder derivative lawsuit stating that despite numerous public statements about the company’s commitment to diversity, “Gap failed to create any meaningful diversity at the very top of the Company.” Similar lawsuits have been filed against Facebook, Oracle, and Qualcomm. But change is happening. California Governor Gavin Newsom recently signed a law requiring publicly traded corporations headquartered in California to appoint directors from underrepresented communities to their boards—it’s the first law of its kind. And Alexis Ohanian, the co-founder of Reddit, and Serena Williams’ husband, gave up his Reddit board seat in June and asked to be replaced with a Black candidate.
Whether or not West is more concerned with his own individual influence or the potential to give more people of color a seat at the board is unclear, but his tweets bring more light to a longstanding issue that impacts all industries.
We spoke to Scafidi about why board members usually look alike, the power they have, if there’s potential for West to gain a board seat, and why those seats are so important.
All publicly traded companies like Gap and Adidas have a board, correct?
They do. A board is the committee that is at the very top of the management structure of a company. Some people become board members because they started the company, or their families started the company, or they are in a high level management position in the company. So, the CEO may also be a member of the board and a company employee. [Board members] may be other people who are very senior and very well respected in the industry and founders of the company invite them to be on the board. It's a management club, if you will.
To use a sports metaphor, if you didn't know anything about baseball and you were watching the team on the field, you would think the pitcher's calling the shots. The pitcher is consulting with the catcher, but it really looks like the pitcher is deciding what happens next, moment by moment. But, really it's the manager who put the pitcher on the mound, the manager who decides when to pull the pitcher when the pitcher looks tired, or isn't performing. It's the general manager who was involved in hiring the pitcher, the coach, and the pitching coach who trained the pitcher. So, you've got all kinds of other people behind the scenes who are really making the big decisions. The board may not make the minute to minute decisions, but they make the big overall management decisions.
How do people get a seat?
A board seat is not something that is advertised and people apply for and send their resumes. A board seat is obtained through much less formal methods, which is why board members tend to look a lot like one another. Sometimes at the level of actual family resemblance, other times, just because they're in the same social and business circles.
"If you look at most companies, it's like looking at a snapshot of a snow covered mountain. The higher you go, the whiter it gets.” -Susan Scafidi
If you are on the board, does that mean you have a financial stake in the company?
It could mean that you have a stake in the business. It could mean that you're an outside board member and you're being compensated for your time and services, but you don't necessarily own a stake in the business. Sometimes when an investment company buys a portion of a business, one of the things that comes with buying that significant percentage is board seats. Because again, that's the highest level of control of the company.
How do you change board seats? Do people keep them until they die? Are they voted out?
Well, it varies by company, right? And some boards have terms. So, you're going to be on the board for a certain number of years. Others have seats for an unspecified duration. And so, only when someone decides to resign or retire or die, does that seat open up, and then it’s filled by the other board members. And they do a search and they talk about what's best for the company. Because the biggest controlling principle of those board members is fiduciary duty to the company. That is to say, they're required to do what's in the best interest of the company, not in their own best interests.
This is what brought on that shareholder derivative suit against Gap. The shareholder is suing the members of the board saying, "Look, you've got a board with zero Black people on it. And, therefore, you're not doing your fiduciary duty because it would be in the best interest of the company to have greater diversity.”
Are these types of lawsuits typical?
It's not an unusual kind of lawsuit, but that particular complaint is very unusual. I don't know if the person who brought the suit actually expects it to go all the way to court or is just trying to use a dramatic way of drawing attention to the subject so that the company changes its ways. But, it really is a powerful and dramatic tool.
And the argument could come up again and again, because we're seeing even more academic research that says greater diversity means a stronger company. And so, if we can prove that academically or scientifically, then it makes sense to say if your board and management isn't diverse, you are actually harming the company because statistically you would be doing better if you had more perspectives to draw from.
What type of decisions are board members making for fashion and sneaker companies? What types of decisions does West want to be a part of?
They're going to be hiring the top management of the company. They also might be approving some of the biggest deals. So, when you have a deal with Kanye or with Beyonce, then the deal might be big enough that the board would decide on it. So, again, they don't make the day to day decisions. They make the very top level decisions. But, if they're choosing the people who are making the day to day decisions, that's a very powerful place to be.
Why would a board member not want Kanye to have a seat?
Well, it's a very new request. So, they may look at all of this, and think, "That's not a terrible idea." I mean, Kanye just did a very landmark deal with Gap. As you well know, the Yeezy GAP collab involves something incredibly unusual. It's not just royalties on the merchandise. If Kanye hits certain sales figures, he has the option to buy shares in Gap up to a total of just under 3 percent. So, Kanye is already looking to be involved with Gap for an extended period. If I recall correctly, the initial deal was for five years and renewable for another five. So, it's a much longer than usual collaboration. But, it's really a commitment to turn Gap, an iconic American brand, into what it used to be.
Kanye really wants to invest his celebrity in lifting up Gap. And so, it's possible that the members of the board could say, "You know what? If he wants to be that involved in this company, and he's going to really put that much attention and energy into making us succeed, maybe he should be a board member." We don't know yet. Right? It may be that they want to consider this in due course when another seat opens up. They may have to think about, "Wow, we have this collab with Kanye, but we also have other collabs, and we haven't put those people on the board or invited them to take board seats. So what does this mean going forward, if this sets a precedent." They want to think about what Kanye brings to the board, in terms of his skillset and so forth. And I would have to say, a lot. But they'll have a decision making process to go through. And, of course, no one likes to make a decision when they're being pressured. So, that might be a reason why they want to take a little time to think it through.
Is there any difference between him wanting to be on the board at Gap versus wanting to be on a board at Adidas? Do you think he has more leverage at one company? Does Adidas being a sportswear brand based in Germany and Gap being a mass apparel brand based in the U.S. change anything in terms of a board seat?
Well, I think it's two different kinds of leverage. He and Adidas have already made a lot of money together and have a history together and an association. And yes, Adidas is German, but it also has an American subsidiary and, is very present in the American market. With Gap, it's a much newer relationship, but it's a relationship that, from the outset, contemplated part ownership. So, he has leverage with both, but in different ways.
And this is unprecedented territory, but do you think it makes sense for them to make him a board member. How does his Twitter account impact that decision?
Boards tend to be a little conservative about airing their dirty laundry in public. And I think that there might be some concern about someone who is very engaged on social media telling secrets or creating an unflattering picture of the company. So, I think that that is bound to be part of the conversation, right? We elected a president based on his tweets. So, who knows what the future holds and what the new standard is for being radically transparent, and sharing your minute-to-minute thoughts about things that are right, but also things that are wrong. So, there's a degree to which it's refreshing to be able to see into the mind of a board member, minute-to-minute.
Now, there have been, not necessarily the board members, but certainly executives, who have gotten their brands in trouble for making politically related statements on social media, right? I think of Kevin Plank at Under Armour. So, there is real concern on the part of a brand that if someone who is high up in the company and affiliated with the company makes a very unpopular statement, that the stock could drop, there could be backlash, there could be people burning their Gap clothes on Insta. So there is concern, but we are in uncharted territory and in a very different world.