CalPERS to Discuss Alternatives to Board Diversity Proposal

Treasurer’s initial proposal of 30% diverse dismissed as ‘arbitrary and limiting.’

California State Treasurer John Chiang is taking another stab at influencing the California Public Employees’ Retirement System’s (CalPERS) program to diversify corporate boards.

Chiang had wanted the $350.9 billion pension plan to vote against corporate boards that were not at least 30% diverse regarding women, and ethnic and cultural representation.

CalPERS has been aggressive in pushing for corporate board diversity. Its global equity portfolio is more than $200 billion, giving the largest US defined benefit plan the license to engage corporations. Despite that, the pension system’s investment staff had rejected Chiang’s criteria as “arbitrary and limiting.”

On Monday, Deputy Treasurer Steve Juarez told the CalPERS Investment Committee that Chiang’s diversity quota plan, “may not be as logical and as fitting for the board to adopt as we might otherwise hope.”

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Juarez said the treasurer’s office will engage investment committee members “in a robust discussion about some other alternatives” at its next meeting on May 14. He said the discussion will be aimed at companies that are “not making significant progress” towards board diversity.

The deputy treasurer did not elaborate on how a revised plan by Chiang, who sits on the CalPERS board, would differ from his original quota proposal. Juarez was representing Chiang, who did not attend Monday’s meeting.

Anne Simpson, CalPERS investment director, sustainability, elaborated to investment committee members why CalPERS is against specific quotas or targets, “And I think what the principle is based on is this idea that we want boards to access all the talent that’s represented in society in their workforce and in their markets.”

The investment committee is expected to take a first vote on its governance and sustainability principles May 14 with a final adoption scheduled for its June 18 session.

But there was far from unanimous agreement at Monday’s meeting over one of the new principles, an anti-sexual harassment policy aimed at boards and executives of corporations. CalPERS investment staff has proposed their board directors and top corporate management be required to disclose all “material settlements” regarding sexual harassment. 

“I think all of us have been watching with horror at the revelations that have been coming out,” Simpson said at Monday’s meeting. “And also, we can see the impact on the companies that we invest in. I mean, share prices collapsing and reputations are destroyed. So, this is a perfect example of where ethics and money really do combine.”

But investment committee member Richard Costigan questioned whether CalPERS principles were specific enough in terms of which sexual harassment settlements had to be disclosed. “We still have to define, what’s the word material?” he said. “Is it $1, $1 million, what’s the definition for this?”

He also said he was concerned that settlements would be reported, but the perpetrators, be they board members or executives, would remain on the payroll.

“I’m not concerned about the settlement as I am about getting rid of the bad person,” he said.

Simpson said she was open to refining the policy and Investment Committee Chairman Henry Jones asked her to do just that for the May 14 meeting.

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