Corporate Board Diversity is a term used to describe the wide diversity of demographic attributes, characteristics and abilities in the boardroom. This can refer to gender, age and educational background, professional expertise and experience, philosophies, cultural identity, race, sexual orientation, and religion. This diversity will provide an array of perspectives and skills which will help meet the needs of the business and future needs of the business.
A well-performing board is essential for a successful business, which is why the composition of a board must be designed to meet this goal. Diversity is one method that the board can achieve this goal by fostering a variety of ideas, perspectives and leadership styles that help to increase awareness of the risk.
Investors are therefore increasingly demanding that directors be diverse. In fact, several large institutional investment management firms are now actively voting against board members of companies that fail to meet their requirements for gender and racial diversity. For instance, in August 2017, CalPERS, a pension fund for state employees, sent letters to 504 of the companies on the Russell 3000 index and demanded that they come up with a policy and implementation plan to achieve diversity.
Additionally, certain states are passing regulations that require companies to implement measures to increase diversity on their boards. California for instance requires that public corporations headquartered in the state have at least a certain number female directors and directors from underrepresented minorities on their boards by the year 2021. Companies are also required by law to reveal the racial and ethnic diversity of their board.