Corporations Are Agreeing More to CalPERS Diversity Demands

More than 50% of the companies engaged by the largest US pension plan are agreeing to add women and minorities to their board.

A review of the California Public Employees’ Retirement System’s (CalPERS) corporate governance program shows that 53% of companies engaged by the pension plan in the 2019 proxy season added diverse members to their boards of directors.

The number of companies that added at least one diverse director were 361 out of 682 engaged, Simiso Nzima, CalPERS corporate governance director, told the system’s investment committee on Nov. 18. Those companies that don’t work with CalPERS on diversity efforts to add woman and minorities are seeing direct action by the pension plan.

Under new guidelines implemented several years ago, the largest US pension plan began voting against the reappointment of some board members at all white, male boards.

Nzima said the approximate $380 billion pension plan voted against 225 directors at 97 companies in the last proxy season.

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Nzima said he believes CalPERS is making progress in board diversity. He said in 2018, CalPERS voted against more than twice the number of board directors than it did in 2019.

“So that number is actually coming down, which shows that companies which previously were not open to this idea, they’re actually now opening up and doing the stuff that we’re asking them to do,” he said.

While the new proxy season won’t get underway until next year, Nzima said CalPERS continues to engage companies regarding board diversity. He said the pension system is currently engaging about 200 companies.

“We expect that those active engagements will result in additional appointments of diverse candidates to the boards of corporate companies,” he said.

Nzima said CalPERS does not vote no against all board members up for reelection at uncooperative companies, instead focusing on a corporate board’s chairman, and nominating and governance committee members.  

What wasn’t disclosed at the investment committee meeting is whether board directors are re-elected anyway, even if CalPERS casts a no vote.

Sources familiar with the situation say CalPERS has generally been unable to defeat candidates to corporate boards, even when the boards are uncooperative on diversity issues.

Through its index portfolios, CalPERS owns stock in virtually every company in the world, but the amount of shares held usually does not exceed 1%.

CalPERS is one of the largest activist investors in the world. It challenges companies not only on corporate governance issues, but how they are dealing proactively with climate change issues and whether they have equitable policies toward their employees.

Some critics have charged that the pension plan has overstepped its bounds in corporate engagement, a charge that pension system officials reject.

CalPERS Chief Investment Officer Ben Meng acknowledged at the Nov. 18 meeting that CalPERS does not currently have academic evidence that taking into account environmental and social concerns in engaging corporations leads to better investment returns. He said the pension system continues to research the arena.

However, in corporate governance issues, such as board diversity, he said the pension plan is on solid footing with academic evidence backing CalPERS up.

Nizma also emphasized that point.

“Companies which are more diverse tend to have better financial outcomes and higher innovation,” he said. “We will continue to hold companies accountable and try and get as many diverse candidates on company boards as possible.”

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