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Institutional Investors Are Leading the Fight for More Diverse Corporate Boards

Boardroom generic, 27 November 2006. AFR Picture by PETER BRAIGBoardroom generic, 27 November 2006. AFR Picture by PETER BRAIG

Are you a diversity candidate interested in serving on a corporate board? If so, institutional investors could be your biggest boosters. On June 1, 14 city and state treasurers and comptrollers, who collectively oversee more than $1 trillion in assets, called on boards to change their nomination processes to increase race, gender, and LGBT diversity.

Individuals who have faced discrimination offer valuable insights on the impact of bias in work life, a perspective that board members can benefit from. A May article by Quartz editor Thomas Page McBee describes how “until [he] was a man, [he] had no idea how good men had it at work.” He wrote that people believe in him, listen to him, and pay him more. The process of changing genders, McBee writes, “provides startling insights into … the costs and benefits assigned to us by our culture; the destructive ways our voices can be silenced. And the way they can also be, so suddenly, heard.”

Some leadership lessons can only be acquired by being subject to regular bias or discrimination. Overcoming such trials can be every bit as important to building character and preparing for board service as, for example, serving in the military.

But that doesn’t mean that everyone who suffers from bias learns from the experience. The reaction of those who have been discriminated against is not uniform. Some who have experienced discrimination may be motivated to join a board to provide independent opinions that tap into a set of experiences others on the board don’t have. But others just convince themselves that this is their motivation when the real reason for wanting to join is to be a part of “the club.” In these cases, any bias they’ve felt is a wasted opportunity at least as far as board service is concerned. In fact, these board members may be less likely to challenge the dominant board view than those who have been rewarded for speaking their minds freely their whole lives, albeit based on limited life experience.

Most boards are not looking for a new director to help them rethink their cognitive biases. Even boards who actively search for diverse candidates are rarely searching for outspoken directors; they are looking for those who will fit in. And with director pay packages growing more generous in recent years, there are plenty of diverse candidates who come from the right social circles and have behaved as expected. To meet diversity criteria by gender and race, the pool is huge and so boards can easily choose those who won’t challenge their way of thinking.

That’s why the pledge of the pension funds in early June to get involved in conversations with boards about their “search processes, assessments and nominations” is so important. Having an in-depth dialogue on these issues could stress the need for candidates who are diverse and independent-minded.

Some institutional investors are already hard at work at diversifying corporate boards. The Thirty Percent Coalition, a group working to increase the ranks of women on boards to 30%, performs its work through committees of corporate leaders, government officials, and institutional investors. The most active of the three is the institutional investor committee, its website notes.

Since 2012, the New York Common Retirement Fund has submitted 17 proposals to companies asking them to disclose their efforts to increase gender and racial diversity. At 12 of those companies, most recently at Priceline, the Fund withdrew its proposals after reaching agreements with the companies.

This proxy season, CtW Investment Group has run no vote campaigns against directors at Chipotle, Discovery Communications, Nabors, and Netflix, in part due to diversity concerns.

In late April, Rhode Island Treasurer Seth Magaziner decided to send a clear message on diversity. “Any time a company nominates a slate of directors that would cause fewer than 30% of its directors to be women or racial minorities, the State of Rhode Island will vote no,” he said. Magaziner noted that he expected the new policy to result in no votes for directors at Hess, Hershey, ConocoPhillips, EMC, and Phillips 66, among others.

Is more diversity on boards a panacea? No. But without it, boards will not have the skills to help their companies compete.

Perhaps we can look to a different future, one in which everyone can experience a work life with people believing in and listening to them and paying them fairly. In such an ideal world, those who now occupy a majority of corporate board seats will no longer be at a disadvantage—both in understanding the lives of the company’s stakeholders (employees, customers, and suppliers) and in their capacity, therefore, to make valuable contributions in the boardroom.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (, an independent board education and advisory firm she founded in 1999. She has been a regular contributor to Fortune since April 2010 and is the author of two books on corporate governance and valuation.