A diverse workforce across the corporate spectrum not only fosters innovation and growth, but also conveys distinct financial benefits to a company's bottom line, according to Eaton Vance subsidiary Calvert Research and Management (Calvert).
A recent 2018 McKinsey report, as well as an earlier 2015 publication, found that companies in the top quartile for racial/ethnic diversity, and gender diversity, are 35% and 15% more likely to have financial returns above their national industry medians, respectively.1
In the Calvert Diversity Report: Examining the Cracks in the Ceiling, released in 2017, Calvert noted some progress in boardrooms, but revealed disappointing results among the executive ranks, with 41% of S&P 100 companies having no women or minorities represented among their five highest-paid executive positions based on data provided in 2016. That statistic is particularly relevant because these positions often serve as the conduit to board membership.
According to the Credit Suisse Research Institute's tracking of global gender issues, just 16% of senior management positions in the US were filled by women in 2016, a marginal increase from 15.4% in 2014.2
2018 boardroom success
In the 2018 proxy season, Calvert is again tackling diversity issues head-on.3 Through engagement and shareholder proposals, we have asked companies to address greater diversity on their boards and increase the number of women and people of colour in senior-level roles.
One company we engaged was Black Knight Inc., a major technology firm serving the mortgage and real estate industries. In April 2018, it agreed to add language about board diversity to its discussion of board nominees. The firm revised its corporate governance guidelines to include consideration of age, gender, nationality, race, ethnicity and sexual orientation. Black Knight's proxy, released in May, states: "Specifically, the corporate governance and nominating committee is focused on considering highly qualified women and individuals from minority groups who may be recommended by our directors, management, or our shareholders as candidates for nomination as directors."
Improving employee diversity
We filed five shareholder resolutions on employee diversity for the 2018 proxy season, and withdrew them all following positive corporate responses. After receiving our proposals, three regional banks and two software companies agreed to establish and/or strengthen their employee diversity programmes and to report on the performance of these programmes.
As an example, we filed a proposal with IBERIBANK in December 2017 for the 2018 proxy season. Recently, the bank hired a woman as executive vice president and chief diversity officer. According to IBERIBANK's April 2018 proxy, her role is to: "...lead the development and implementation of proactive diversity, equity and inclusion initiatives, which will support the company's strategic plan."
Contributing to corporate progress on diversity feels especially meaningful given the emergence of the #MeToo movement and the ongoing focus on racial inequality in the United States, which has taken on renewed urgency. Empowering women and people of colour in the workplace will remain a priority for Calvert.
A Look Back at 2017
In 2017, Calvert filed two board-diversity shareholder resolutions, with the Zillow Group and Dentsply Sirona, but chose to withdraw them after successful engagements. Online real estate firm Zillow Group agreed to specify diversity of "gender, race, and ethnicity" as qualities the board seeks in its director search. The company also added a woman to its board, although it said her appointment was in process prior to Calvert's engagement.
Dentsply Sirona, a global dental equipment company, updated its nominations and governance committee charter to include diversity of race and gender as factors in its board member searches. The company agreed to report annually on its progress in implementing its inclusive polices.
Leveraging collective influence
In the third quarter of 2017, Calvert signed letters sent to 76 companies by the 30% Coalition, a group of institutional investors that advocates for greater racial and gender diversity on corporate boards. Since 2012, the Coalition has engaged with more than 150 companies, who subsequently have appointed a woman to their boards, in many instances a minority woman, for the first time. These letters highlight the growing investor appreciation of the value of board diversity.
Bottom line: Companies with more diverse boards and executive ranks have competitive market advantages, with studies showing links to financial performance. Over the past 10 years, Calvert's diversity research and shareholder advocacy have catalysed corporate action, not only as a societal concern, but also as a business imperative.
1. Hunt, V., Layton, D., Prince, S., "Why Diversity Matters," January 2015, http://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters. "Delivering through Diversity," McKinsey & Company, January 2018.
2. "The CS Gender 3000: The Reward for Change," Credit Suisse Research Institute, September 2016.
3. Calvert generally defines the proxy season as running from 1July to 30 June. By this measure, the 2018 proxy season ends on 30 June of this year.
This material is provided solely for informational purposes and is intended only to illustrate certain relevant environmental, social and governance factors. This information does not constitute an offer to sell or the solicitation to buy securities. The information presented has been developed internally and/or obtained from sources believed to be reliable; however, Calvert does not guarantee the accuracy, adequacy or completeness of such information. Opinions and other information reflected in this material are subject to change continually without notice of any kind and may no longer be true after the date indicated or hereof. Past performance is no guarantee of future results.