The California Public Employees’ Retirement System has sent letters to 504 companies in the Russell 3000 Index regarding diversity on their board of directors. The letters outline the growing evidence that board diversity has a positive economic impact on business performance. CalPERS requested that each company develop and disclose its corporate board diversity policy and implementation plan to address the lack of diversity.
CalPERS has long advocated for increased board disclosure and representation of diverse characteristics such as gender, age, gender identity and sexual orientation, cultural and ethnic composition, and historically under-represented groups. CalPERS has an interest in each company’s growth and ability to create value for shareowners over the long-term. To successfully execute a long-term business strategy and mitigate risk, a company’s board should reflect a diverse mix of skills, backgrounds, and experience. The initial 504 companies were selected based on a lack of gender diversity on their boards.
"Simply put, board diversity is good for business," said Anne Simpson, CalPERS investment director, sustainability. "It is essential in today’s global economy that boards avoid "group think" and ensure there is the breadth of experience, skills and knowledge necessary to meet complex business needs."
Over the coming months CalPERS will closely monitor the companies’ progress on the matter and enter into confidential engagements when necessary. In instances where companies fail to respond appropriately, CalPERS will consider withholding votes from directors at future annual general meetings.
To help increase diversity on corporate boards, CalPERS and CalSTRS developed the Diverse Director DataSource, called "3D," in 2011. 3D was designed to make it easy for companies to find untapped talent to serve as directors on corporate boards. In 2016, 3D became available through the Equilar Diversity Network. CalPERS has also advocated for corporate disclosure of human capital management policies and amendment of the proxy rule regarding board nominee disclosure.
CalPERS has outlined its board diversity principles in the CalPERS Governance & Sustainability Principles. Diversity and Inclusion is also one of the six strategic initiatives identified within the CalPERS Environmental, Social, and Governance Strategic Plan, which was adopted by the CalPERS Board in August of 2016.
