Corporations are receiving pressure from shareholders to better align with modern environmental, social, and governance (ESG) concerns, including de-carbonization and retracting from organizations with poor ethical standards.
Now, a group with about $283 billion in assets under management has unified to push for diversity among corporate governance boards “inclusive of gender, race, and ethnicity-at companies headquartered in the Northeast,” the Northeast Investors’ Diversity Initiative said in a statement. “The investor coalition intends to leverage their corporate relationships and shareholder rights to encourage boardroom diversity and inclusion.”
The group is made up of the state treasurers of Rhode Island, Connecticut, Maine, Vermont, Massachusetts, and New York, as well as asset management firms Boston Trust Walden, Trillium Asset Management, Zevin Asset Management, and Pax World Funds.
The coalition has cited numerous reports and studies asserting that diversity in a board’s governance body is beneficial for returns.
However, despite increasing demands by investors for more diversity, progress in these firms has been slow, according to a May 2019 report from Wilshire Associates. The report cited statistics showing that fewer than 200 of 7,000 mutual funds are run by women, and that women accounted for just over 10% of investment partner or equivalent roles. Additionally, it said people of color make up 22% of the venture capital workforce, with African American employees and Hispanic or Latino employees at just 3% and 4%, respectively.
“An increasing body of research shows that companies with stronger diversity at the senior level tend to outperform those companies that lack diverse leadership teams,” said Rhode Island General Treasurer Seth Magaziner. The state’s current policy is to vote against all director nominees sitting on boards with less than 30% diversity, inclusive of gender and ethnicity. So far in 2019, they’ve voted against 73 companies for a lack of diversity.
New York in mid-October called for companies to adopt the “Rooney Rule”, asserting “companies have leadership teams that look like they’re out of the 1950s.” The Rooney Rule is a 2003 National Football League policy requiring that every team with a head coaching vacancy to interview at least one or more diverse candidate.
Companies in the top quartile for racial and ethnic diversity are 33% more likely to outperform on profitability than companies in the bottom quartile, according to a study by McKinsey & Co. McKinsey also found that companies in the top quartile for gender diversity on their executive teams were 21% more likely to experience above-average profitability than companies in the bottom quartile.