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GOOD GOVERNANCE: INCREASING DIVERSITY ON CORPORATE BOARDS TO BOOST INVESTMENT RETURNS
As the custodian and investment advisor to the Boards of the five Pensions Funds, the New York City Comptroller is tasked with securing the fiscal health of publically funded retirement plans. New Yorkers understand the value of diversity, and similarly the significance of women as workforce leaders. Furthermore, marketplace research indicates that gender diversity promotes long-term corporate fiscal stability. As Comptroller, Scott will take a leadership role working with other pension funds and institutional investors to push public companies to expand the representation of women on corporate boards by broadening and expanding the Thirty Percent Coalition; sponsor shareholder initiatives to improve board and workplace diversity; develop a comprehensive program in the Comptroller’s Office to promote opportunity for women and people of color throughout the workplace and beyond the boardroom, including executive suites, management and through promotion and retention; and conduct research and advocacy to support policies and corporate governance initiatives to improve the representation of women and minorities. WHY CORPORATE DIVERSITY MATTERS 93 years ago this month, the 19th Amendment to the Constitution was ratified, granting women the right to vote. A fight that had begun in the small town of Seneca Falls, New York decades earlier had at long last fulfilled one of its most cherished goals. But just as the franchise did not bring equality for African-Americans following the Civil War, so the right to cast a ballot did not eliminate the deeply ingrained sexism in American society. Rather, as the novelist Fannie Hurst said, “A woman has to be twice as good as a man to go half as far.” Sadly, that remains the case far too often in America today. We have all heard about the pay gap suffered by women—
that college-educated women working full time earn more than a half million dollars less than their male peers do over the course of a lifetime.1 What is less well known than the pay gap but just as insidious is the vast underrepresentation of women and people of color on the boards of directors of America’s largest corporations. In 2012, women accounted for 47 percent of the workforce at S&P 500 companies, but only 17 percent of the board members. In addition, only 21 women currently serve as CEOs of Fortune 500 companies—a mere 4 percent of the total.2 This disturbing lack of progress extends to the inclusion of people of color on corporate boards as well. Last year 56 percent of S&P 100 companies had no women or minorities in their highest-paid senior executive positions.3 Furthermore, women of color comprise only 3.9 percent of Fortune 100 boards and 3.2 percent of Fortune 500 company boards.4 An analysis from Calvert Investments shows that Standard and Poor’s (S&P) 100 companies are still failing to put substantial numbers of women and minorities into boardrooms and executive suites.5 The findings of the Calvert study include:
The representation of women and people of color in management roles decreases with each step up the corporate ladder. 56 percent of S&P 100 companies have no women or minorities in their highest-paid senior executive positions. Women make up only 19 percent of S&P 100 board of director positions. 39 companies do not disclose any employee demographic data, leaving consumers and investors unable to determine the effectiveness of corporate diversity initiatives.
Meanwhile, competitor nations are doing much better. In India and Brazil, 11 percent of large company CEOs are women and in China 32 percent of senior managers in China are women, compared with 23 percent in the United States.6 Other nations, including Norway Iceland, France, the Netherlands,
http://www.aauw.org/files/2013/02/graduating-to-a-pay-gap-the-earnings-of-women-and-men-one-year-aftercollege-graduation.pdf. 2 http://www.ey.com/US/en/Issues/Governance-and-reporting/Audit-Committee/BoardMatters-Quarterly-September-2012---2---Women-on-the-board; http://www.catalyst.org/knowledge/women-ceos-fortune-1000. 3 http://www.calvert.com/NRC/literature/documents/BR10063.pdf. 4 http://theabd.org/2012_ABD%20Missing_Pieces_Final_8_15_13.pdf. 5 http://www.calvert.com/NRC/literature/documents/BR10063.pdf. 6 http://www.economist.com/node/21526872.
Spain, Italy, Malaysia, and Belgium have passed laws requiring that a certain percentage of board members be women.7 This record is shameful, not just because it speaks to the limited opportunities available to women and people of color in corporate America, but also because we have strong evidence that companies with more diverse boards perform better, and thus provide a stronger return on investment for our pension funds. In turn, stronger performance means more money in our budget for public education, affordable housing, and middle class tax relief. According to a Credit Suisse study of 2400 companies between 2005-2011, companies with female directors perform significantly better then those without them – and are slightly more risk-averse.8 The study identified four key findings relevant to investment analysis: • • Higher returns: Boards with at least one woman have a higher average return on equity Less debt: Companies with one or more women on the board have less debt relative to their equity and reduced their debt more quickly during the financial crisis Price-to-book value: this value was higher for companies with women on the boards, giving companies stronger valuation in the stock markets Net growth: Companies with women on board demonstrated 14 percent growth, compared to 10 percent with no representation
WHAT SCOTT WILL DO TO BOOST DIVERSITY AND IMPROVE PENSION PERFORMANCE As a Trustee of the New York City Employees Retirement System (NYCERS), one of the City’s largest pension funds, Scott supported joining the Thirty Percent Coalition—a coalition of institutional investors and advocates seeking to diversify corporate boardrooms. The coalition’s members have filed dozens of shareholders resolutions urging companies to support diversity and to diversify the membership of their corporate boards, with the goal of attaining at least 30 percent female representation across public company boards by the end of 2015. 9
http://www.nytimes.com/2010/01/28/world/europe/28iht-quota.html?pagewanted=all&_r=0. http://www.fortefoundation.org/site/DocServer/cs_women_in_leading_positions_FINAL.pdf?docID=17902. 9 http://www.30percentcoalition.org/news/97-institutional-investors-file-shareholder-resolutions.
Better performance with heightened risk awareness is important to all investors, but especially to long-term shareholders like the City’s pension funds. Based on principles of corporate social responsibility and financial stability, Scott will build on his demonstrated capacities as a NYCERS Trustee, and protect the retirement security of New York City public employees while respecting the taxpayers who help fund it. As Comptroller, Scott will take a leadership role to increase representation by women and people of color and boost the long-term performance of our funds: • Scott will work actively with the Thirty Percent Coalition to further mobilize other institutional investors, pension funds, corporate executives and government officials to promote public awareness of the Coalition’s work and pressure public companies to elect and encourage women to take leadership positions, on boards and in executive management, in companies in which New York City pensions invest. Scott will create a comprehensive program within the Comptroller’s Office to increase representation and advancement by women and by people of color in corporate boards and the workplace. o Scott will work with Fellow Pension Trustees to require asset managers that already receive New York City pension funds to (a) report their policies and practices for workplace and board diversity, including hiring, retention, promotion and compensation for women and people of color, and (b) commit to a plan to promote diversity in their firms and in the companies in which they invest o Scott will work with Fellow Pension Trustees to require asset managers seeking to manage New York City pension funds to (a) report their policies and practices for workplace and board diversity, including hiring, retention, promotion and compensation for women and people of color, and (b) address how they promote diversity in their firms and in the companies in which they invest o Work with the many other contractors, such as law firms, broker dealers, municipal bond underwriters, of the Comptroller’s Office to promote their disclosure of policies and practices for workplace diversity and develop a model for other City agencies to strengthen accountability for diversity with their contractors • Scott will work with fellow pension trustees to sponsor shareholder
resolutions that call for (a) the greater representation of women/people of color on corporate boards and (b) stronger policies promoting workplaces diversity in hiring, retention, promotion and compensation to ensure there is a pipeline for strong women and minority leaders to secure seats in management. • Scott will appoint a Chief Diversity Officer to work with important stakeholders in the corporate, academic and public sectors to coordinate best practices and share information to develop the most effective strategies for promoting diversity throughout different industries and sectors. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires establishing Offices of Minority and Women Inclusion at 20 federal regulatory agencies that are creating diversity standards for regulated industries in financial services. Scott will work with this federal initiative and ensure the Comptroller’s Office systematically holds the City and its industries to the highest standard of diversity. Scott will lead the Comptroller’s Office to expand research and develop policies through economic analysis and corporate governance research that promote board and workplace diversity.
Shattering the glass ceiling won’t just benefit the women who attain high corporate office—it will benefit all of us, by improving corporate governance and returns, and by fulfilling our Nation’s foundational promise: that brothers and sisters, sons and daughters, granddaughters and grandsons should have an equal opportunity to succeed.
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