Why We Need Diversity in the Boardroom

Too many boardrooms across corporate America are in a sad state of status quo, homogenized into the kind of groupthink that can stifle innovation and damage their reputations. The lack of gender and racial diversity in corporate boardrooms is why the New York State Common Retirement Fund joined with the Thirty Percent Coalition in 2012 to focus attention on more than 40 S&P 500 companies that did not have women on their boards of directors. We expanded that list to include companies in the Russell 1000. That list included some of the most recognizable brand names of American commerce.

According to research by Equilar, just 18 percent of board seats at S&P 500 companies were filled by women in 2014. This falls to 14.9 percent when looking at the S&P Mid-Cap 400 and drops further to 11.7 percent when looking at the S&P Small-Cap 600. This disparity persists despite the growing body of research, by Credit Suisse and others, which demonstrates that companies with female board directors perform better than those with none. We need change in the boardroom. 

When we see a company that has few or no women on its board we have to ask questions. We’re not only concerned with the company’s reputation, but with its ability to innovate and compete in an increasingly global marketplace.

Fortunately, we’re building momentum as more corporations wake up to the value of diversity. As investors we believe this is part of good governance and a sign of a well-functioning board.

Our Common Retirement Fund has led investor coalitions that have persuaded 12 major portfolio companies to diversify in the past few years, including eBay, Urban Outfitters and Monster Beverage in 2015. These companies have already added 11 diverse directors.  

When we reach out to portfolio companies we ask them to consider adopting formal language in their nominating committee charters and seek out diversity by gender and race when nominating board candidates.

This year, we broke new ground by expanding that request to include sexual orientation and gender identity. Two companies, Monster Beverage and the homebuilder Standard Pacific Corp., agreed, and added sexual orientation and gender identity to the diversity considerations in their board director nominating charters. Standard Pacific Corp. is likely the first to ever formally adopt this diversity commitment.

We expect to see more companies follow this new precedent and include sexual orientation and gender identity in their diversity considerations in the years ahead.

It is difficult to understand why a corporation would risk alienating its customers or its shareholders by allowing its boardroom to be perceived as the exclusive domain of one gender and one race. It is frustrating that the boards that persist in resisting diversity are missing out on some of the greatest talent available to them. Companies across our portfolio have a lot of work to do.

State legislation is being considered that would require companies seeking business with New York to disclose the number and percentage of their female directors and executives and their plans to increase gender diversity on their boards. If it becomes law, it will put corporations large and small on notice that New York is concerned about equity in business.

Philadelphia has already adopted similar legislation. Additionally, nations including Germany, Australia and France are insisting on either increased diversity from publicly traded companies or disclosure of board composition.   

Diversity in the boardroom can improve performance, and at the end of the day our top priority is to provide a good return on investment and a secure retirement for the 1.1 million members of the New York State and Local Retirement System. Corporations that put our returns at risk are going to hear from us.

New York State Comptroller Thomas P. DiNapoli is trustee of the $183.5 billion New York State Common Retirement Fund.