Corporate Board Diversity is a term used to describe a broad range of demographic characteristics, abilities and attributes within the boardroom. This may include age, gender education as well as professional experience, competencies such as philosophies, cultural identity such as sexual orientation, race, and religion. This diversity can help cultivate an range of perspectives and abilities to address the business and future needs of the business.
A successful business requires an effective board capable of performing well. Therefore the composition of the board must be designed to accomplish this objective. Diversity is one method that the board can accomplish this goal by fostering different ways of thinking, leadership and emotional styles that help to Corporate Board Diversity increase awareness of risk.
Investors are now increasingly demanding that boards of directors be diverse. Some of the biggest institutional investment firms are actively voting against board members who do not meet their standards of gender and racial equality. For instance in August 2017, CalPERS, a pension fund for state employees, wrote letters to 504 of the companies listed on the Russell 3000 index and demanded the creation of an action plan and policy to ensure diversity.
Certain states also pass regulations that force companies to adopt measures to increase board diversity. California for instance, requires that public companies that are headquartered in the state have at least a certain amount of female directors and directors from minority groups that are underrepresented on their boards by the year 2021. Additionally, companies are required to disclose racial and ethnic diversity of their boards.