Corporate Board Diversity is a term used to describe the broad range of demographic attributes as well as the characteristics and capabilities that exist in the boardroom. This may include age, gender education as well as professional experience and skills such as philosophies, cultural identity, sexual orientation, race, and religion. This diversity can cultivate a useful range of perspectives and skills that can be able to meet the needs of business and the future of the company.
A successful company needs a board that is capable of delivering well. Therefore, the composition of the board must be designed to achieve this objective. Diversity is one way the board can achieve this goal by encouraging different ways of thinking, leadership and emotional styles that help to increase awareness of risk.
Investors are progressively insisting that boards of directors be diverse. In fact, some large institutional investment management companies are beginning to actively vote against board members of companies that do not meet their standards for gender and racial diversity. CalPERS, the pension fund for state workers issued letters in the month of August 2017 to 504 companies listed on Russell 3000, demanding that they develop and implement a policy for diversity.
Certain states also have laws that require companies to take steps to improve board diversity. California for instance, requires that public companies with their headquarters in the state have at least a certain number female directors and directors from minorities that are underrepresented on their boards by the year 2021. Additionally, companies are required to publish the racial and ethnic diversity of their boards.