You are here: Home Knowledge Base Society Board Diversity and Corporate Governance Proposals Investors encourage companies to change the director selection process and institutionalize a commitment to a diverse and inclusive boardroom
Symposium 2011

Proposal - Investors encourage companies to change the director selection process and institutionalize a commitment to a diverse and inclusive boardroom

The Challenge

The global financial crisis has led to demands for greater transparency in corporate practices. But less attention has been paid to whom the players should be in this new environment. Corporate boar ...

The global financial crisis has led to demands for greater transparency in corporate practices. But less attention has been paid to whom the players should be in this new environment. Corporate boards across the world generally have a predominance of male directors. Research shows a lack of diversity in terms of gender, race/ethnicity and international expertise at a time when “global” defines the business climate.

Proposed Solution: Investors encourage companies to change the director selection process and institutionalize a commitment to a diverse and inclusive boardroom.

At Calvert investments, we have long believed that there is a strong business case for board diversity. Our sustainability investment research process includes diversity as a key factor in selecting the companies that are included in our sustainable and responsible investment portfolios. We recognize corporate diversity as a key ingredient necessary to succeed in an increasingly global marketplace, where the ability to draw on a wide range of viewpoints, backgrounds, skills, and experience is critical to a company’s success. In our view, companies combining competitive financial performance with high standards of corporate governance, including board diversity, are better positioned to generate long-term value for their shareholders.

In the United States, recent disclosure requirements from the Securities and Exchange Commission have increased the overall attention on board diversity, yet have not had an impact on the pace at which women are being added to boardrooms. According to our most recent research, Examining the Cracks in the Ceiling: A Survey of S&P 100 Corporate Diversity Practices, women still make up a mere 18% of director positions in Standard and Poor’s 100 (S&P 100) Index companies. Even more disappointing, women constitute only 8% of the five highest paid positions within the same group of companies.

We believe investors hold a key to the solution. Investors have a right and a responsibility to engage with companies on environment, social, and governance issues where shareholder value is at stake and improved performance is likely within reach. Calvert uses strategic engagement and shareholder advocacy to encourage positive change in companies in virtually every industry, both to establish certain commitments and to encourage concrete progress.

Since 2002, Calvert has engaged hundreds of companies on advancing board diversity, through proxy voting, letters and shareholder resolutions. The results have been positive: of the 55 companies where we have filed formal shareholder resolutions, 30 diverse candidates have been added to those boards. The following recommendations are based on these successful engagements.

Clearly, there is a large and talented pool of diverse executives and experts from a broad array of organizations, including large corporations, academic institutions, non-profit enterprises, and privately held businesses, that are qualified for board service. Yet traditional director searches often focus solely on candidates who have served many years in a very specific CEO or senior corporate executive role. This often eliminates otherwise qualified female candidates from even being considered or interviewed for director positions. Investors should encourage companies to change this process by expanding their searches to increase the likelihood that they will find diverse candidates. In addition to expanding search parameters, companies need to amend the procedures by which their board nominating committee (or other such designated committee that oversees the director selection process) considers candidates for the board of directors. Specifically, amendments should be made to stated director selection criteria that specify diversity inclusive of gender as part of the desired director nominee characteristics. Finally, companies need to adopt a selection process in which they are consistently considering and reviewing applications from diverse candidates as part of every director search. Rather than mandating the representation, this would ensure that women are being considered for every director vacancy.

By focusing on the director selection process, companies can move beyond what can be seen as the “token woman” representative on a board of directors to more fully inclusive representation. After all, companies can only truly realize the benefits of board room diversity by adding more than a single diverse director. By institutionalizing this process into publicly disclosed governance charters and nominating procedures, companies can hold themselves accountable on their commitment to diversity and this process can also help bridge gaps in situations where a newly appointed Chairman or CEO may not have the same commitment to diversity as previous company leaders.

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