House Subcommittee on Diversity and Inclusion
At a Congressional hearing on diversity data, Anne Simpson talked about why diversity in portfolio companies is one of the top priorities for CalPERS:
As a fiduciary that must pay benefits long into the future, we are focused on corporate practices that drive long-term value. We believe, and research increasingly demonstrates, that companies with a diverse board, inclusive of gender and race/ethnicity, are better positioned to execute good governance, effective risk management, and optimal decision-making, as well as enhanced customer alignment, employee engagement, and transparency. For instance, the Office of the Illinois State Treasurer published a white paper titled “The Investment Case for Board Diversity” which provides an extensive and comprehensive review of academic and practitioner research on the value of gender and racial/ethnic board diversity for investors. The examination finds that “the gender and racial/ethnic composition of corporate boards does indeed have a material and relevant impact on company performance and investors.”
ISS has found similar results. To help measure the benefits of diversity on performance, ISS launched the ISS ESG U.S. Diversity Index in 2020. The index integrates ethnic and gender representation for directors and named executive officers of 300 large-, mid-, and small-cap U.S. companies. Since its inception, the index has outperformed the S&P 500 and the Russell 1000. Moreover, ISS has found that “companies with greater gender diversity exhibit better market performance and higher financial quality than those companies that do not prioritize gender diversity.” [footnotes omitted]
New York State Comptroller Thomas DiNapoli’s testimony included his own efforts to increase diversity in his program:
The lack of racial and ethnic diversity and inclusion poses risks to companies that senior managements and boards must understand and remedy. By not addressing diversity and inclusion, companies are more likely to underperform their peers, face reputational risks, and jeopardize shareholder value….
From the success of our own staff, I know firsthand the positive impact of having diversity in executive management — how a broader range of thought and experience can lead to better assessments of investment opportunities and produce higher returns. That’s why when I became New York State Comptroller in 2007, I set out to work to increase diversity in the Fund’s manager pool. I knew that increasing the talent pool of minority and/or women-owned business enterprises (MWBE) and emerging managers could help build significant, long-term gains for our Fund. I also made a commitment to launch an Emerging Managers Program in each of our major asset classes.
Today, the Fund is the gold standard in MWBE and Emerging Managers programs in the nation, with more than $6.7 billion in emerging manager commitments and approximately $20 billion in total MWBE investments and commitments through our Emerging Manager Program and direct allocations.15 We currently have 128 MWBE relationships and 47 emerging manager relationships (non MWBE). This is the highest level of MWBE and emerging manger partnership in the Fund’s history and it continues to grow each year. These relationships represent over 20 percent of the Fund’s externally managed assets. We strongly believe that these firms provide top-tier service to the Fund and that our relationships with them have opened new opportunities to improve the Fund’s returns.
Rick Wade of the Chamber of Commerce used the passive voice in describing its members’ shortfalls on diversity and unsurprisingly urged moderation in any government initiatives:
[D]iverse representation—especially Black representation—in boardrooms is still distressingly low..We need to address diversity urgently and through intentional action, but policymakers should be careful to structure diversity policies in a flexible and durable way. .