According to the report: "Research suggests that companies with more diverse boards, especially gender based diversification, have higher performance and key financial metrics such as return on equity, return on sales, and return on invested capital."
Key findings in the CalPERS report include:
- A gap still remains between ethnic minority representation on corporate boards in Fortune 100 companies versus the general US population.
- While women comprise slightly more than half of the US population, they hold a mere 17% of the positions on corporate boards at Fortune 100 companies. Research suggests that companies with more diverse boards, especially gender based diversification, have higher performance and key financial metrics such as: Return on Equity, Return on Sales and Return on Invested Capital.
- A selected group of companies with a high representation of diverse board seats (ranging from General Electric to Honeywell) exceeded the average returns of the Dow Jones and NASDAQ Indices over a 5 year period.
- Each of the selected group of companies with a high representation of diverse board seats also have a Head of Diversity executive responsible for managing the company’s diversity initiative.
- The Business Case for Diversity has evolved to a proven Diversity Return on Investment (DROI) model that can be implemented across industries and on a global scale.
- Companies that have non-diverse boards or have not integrated a diversity ROI model within their current diversity initiative may be at a clear competitive disadvantage and may be underperforming in terms of shareowner value.
- Place board diversity as an agenda item at a future board meeting.
- Use best practices from this whitepaper as a road map for both board diversity and diversity return on investment.
- Tap into key resources as listed in the Implementing Diversity Best Practices section.
- Embed a Diversity ROI strategy in your organization with objectives, deliverables, accountability, and metrics.
The report also expands the traditional notion of diversity beyond race, gender, and ethnicity to diversity of skills and experience that may enhance both board performance and financial performance: "Corporate directors should address accounting or finance, international markets, business or management experience, industry knowledge, customer-based experience or perspective, crisis response, leadership and strategic planning as well as address historically underrepresented groups on the board, including women and minorities."
Recognizing that diversity is an attribute that adds value and may provide a competitive advantage, as fund boards grow, add new members, or replace retiring members, diversity should figure into the nomination and selction processes. As SEC Commissioner Luis A. Aguilar stated recently in an address to a group of fund independent directors:
I want to encourage everyone in this room to prioritize and implement practices to increase board diversification. It is imperative to have a process in place to be able to identify diverse candidates. The nominating committee should follow policies and procedures which require that, in all future assessements of board needs, to include the development of a diverse slate of candidates in advance of a board opening becoming available. In today's environment, diversity in the boardroom is a business necessity and I urge you to take action to support it.Consistent with the goal of increasing fund board diversity, the Forum maintains a resume bank of potential fund board candidates, and will assist the nominating committees of boards who are members of the Forum to identify candidates.
The full text of the CalPERS board diversity report is available at: http://www.calpers.ca.gov/eip-docs/about/press/news/invest-corp/diversification-strategy.pdf
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