Corporate Board Diversity

Corporate Board Diversity is an expression used to describe the wide variety of demographic characteristics as well as the characteristics and capabilities that exist within the boardroom. This could include gender, age, educational background, professional skills and experience, philosophies, cultural identity, race, sexual orientation, and religion. This diversity can create a useful assortment of perspectives and capabilities to meet the business and future demands of the company.

A successful company needs a board that is capable of performing effectively. Therefore the composition of the board must be designed to accomplish this objective. Diversity is one method that the board can attain this goal by encouraging different leadership, thinking and emotional ways of thinking that increase awareness of risk.

As such investors are now insisting that their companies have an inclusive board. Some large institutional investment firms are actively voting against board members who don’t conform to their standards of gender and racial equality. For example in August 2017, CalPERS, a pension fund for state employees, wrote letters to 504 companies on the Russell 3000 index and demanded that they develop an action plan and policy to achieve diversity.

Additionally, certain states are passing laws that require companies to take steps for achieving board diversity. California, for example, requires that public companies that are headquartered in the state must have at least a certain number female directors and directors of minority groups who are underrepresented on their boards by 2021. In addition, companies are required to disclose racial and ethnic diversity of their boards.

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