State Treasurer Frerichs says Diversity and Transparency are good for business
Research shows that diversity is good for business. A study conducted by a well-regarded business consultant, McKinsey & Co., revealed that corporations with diverse boards outperformed homogenous boards.
When people from different backgrounds make decisions together, they are less prone to group-think, and they are less likely to miss opportunities in different sectors. This leads to better decision-making, which leads to higher profits.
As treasurer, my goal is to maximize profits and increase returns to our taxpayers. Every dollar that we can earn in interest income is a dollar that doesn’t have to be raised in taxes, or a dollar that does not have to be cut from our schools.
I know that what doesn’t get measured, doesn’t get managed, and that as an investor, we need transparency and information to make the best decisions.
That is why I brought together a group of institutional investors from the public and private sectors to encourage business leaders to consider increasing corporate board diversity.
What started two years ago–asking Russell 3000 companies to disclose corporate board diversity data–is driving impressive results: More than 2,200 companies now disclose the data, up from 292 companies in 2020.
Why are more companies sharing this data? Certainly, a requirement by some states to do so is a factor. However, we believe more significant factors are that more shareholders consider this data in making their investment decisions and a recognition that diversity increases profitability.
Joining me in building this 26-member coalition is Connecticut State Treasurer Shawn Wooden. Among our partners are respected investment managers such as Ariel Investments, Boston Trust Walden, and the Vermont Pension Investment Commission.
“Over the past two years, there has been incredible momentum among public companies toward greater diversity and more transparent disclosures,” Wooden said.
This diversity movement started with encouraging boardrooms to consider more women’s voices at the table. Research shows gender-diverse boardrooms have better long-term performance than their counterparts. For instance, the McKinsey & Co. report found that companies with the highest levels of gender diversity outperformed by 25 percent in terms of profitability. The next reasonable step is to increase racial diversity to have more diverse perspectives and experiences in corporate boardrooms where they are frequently absent.
When companies build a diverse leadership team, they better position themselves to innovate, attract talent, and increase productivity. Doing so leads to more customers and higher profits. Sharing board diversity data allows investors to better assess future growth and shareholder value.
Transparency is good for government. Transparency is also good for investors.
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