This op-ed was originally published in Pensions & Investments
This month, Amalgamated Bank announced it has become the first non-governmental institutional investor to expand its definition of board diversity to include LGBT people.
It’s a significant milestone in the ongoing effort to bring fresh perspectives, experiences and skills into the corporate boardroom.
The Commonsense Principles of Governance, developed by business leaders including Warren Buffett of Berkshire Hathaway Inc. and Jamie Dimon of J.P. Morgan Chase & Co., state “diversity along multiple dimensions is critical to a high-functioning board.”
But as of last year, only three companies in the Fortune 500 explicitly included sexual orientation as part of the definition of board diversity in their nominating guidelines for board members, lagging far behind other historically underrepresented groups.
Of Fortune 500 boards that consider diversity in their selection criteria, 58.9% explicitly call out gender, 39.3% ethnicity, 38.4% race and only 1.4% sexual orientation.
For the most part, global board search firms also fail to include LGBT+ as a measure of diversity, which seems like a clearly missed opportunity. They’ve told us that the companies they work for haven’t asked for it — but when has innovation and leadership not involved some initiative?
LGBT+ diversity is a late-breaking topic in the broader board diversity debate, which advocates have been promoting on gender and ethnicity fronts for decades.
Unfortunately, the homogeneity of corporate boards has proven deeply entrenched.
In 2017, just 22% of the board directors of Fortune 500 companies were African-American, Hispanic or Latino or Asian. A Credit Suisse study released in March last year found that women held just 14.7% of board seats at global companies, a sorely disproportionate number that nevertheless represents an increase of 54% since 2010.
A 2017 survey by Out Leadership identified just 16 openly LGBT+ directors on the boards of Fortune 500 companies, less than 0.3% of all Fortune 500 directors.
Only a handful of the 93% of Fortune 500 firms that prohibit employment discrimination against LGBT+ people include LGBT in their definition of diversity for board nominations.
The absence of LGBT+ people on corporate boards is a huge blind spot for companies — and an opportunity for forward-looking business leaders. In fact, according to a recent Credit Suisse study, an index of LGBT+ inclusive companies outperformed the broader MSCI ACWI index by an average of 3% a year.
Quorum, an initiative of Out Leadership, seeks to increase representation of LGBT+ people on boards, arguing companies tend to undervalue potential in the LGBT+ community when they undertake searches.
In the 2016 study “Building a Great Board,” Quorum global sponsor KPMG found directors identify plenty of room for improvement in their board search procedures — only 36% said they are “satisfied” their board has the right combination of skills, background and experience.
Soon after Quorum got the conversation started, a number of the world’s largest public institutional investors, including CalPERS, CalSTRS and the New York City Retirement Systems, adopted proxy statements inclusive of LGBT+ people.
When New York City Comptroller Scott Stringer announced the city funds’ new policy in 2016, he and I wrote: “Shareowners expect boards to recruit the best and the brightest, and to avoid the paralysis of groupthink. But this can only happen if shareowners and companies alike understand — and adopt policies to seek out — the important perspective that LGBT+ directors can bring to the boardroom.”
But while many large private institutional investors have been vocal about making board diversity a priority, as a matter of their fiduciary duty to act in the interests of their investors, until now none has taken the important step of rewriting its guidelines to include LGBT+ as a form of diversity.
Correspondingly, while we anticipate that one day soon there will be a tectonic shift, and major corporations will adopt board diversity policies inclusive of LGBT+ people en masse, that day has not yet arrived.
Forward-thinking business leaders who understand their fiduciary duty calls them to seek diverse perspectives should consider consulting Out Leadership’s LGBT+ board diversity guidelines.
We applaud Amalgamated Bank for its leadership, and for taking the leap. We look forward to seeing who’s next.