CalSTRS Board Updates Corporate Governance Principles on Corporate Board Diversity

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Update expands the definition of corporate board diversity to include sexual orientation and gender identification, sought by State Treasurer John Chiang

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We understand the value of diversity on the performance of our portfolio companies…Their success is a linchpin to our ability to secure the financial future of California’s educators. CalSTRS Chief Executive Officer Jack Ehnes

The California State Teachers’ Retirement System’s (CalSTRS) Investment Committee today updated their Corporate Governance Principles to expand the definition of board diversity to include sexual orientation and gender identity.

The CalSTRS Corporate Governance Principles outline the basis for how the fund implements governance initiatives with its portfolio companies. Today’s action aligns CalSTRS principles with the request of one of its board members, California State Treasurer John Chiang.

In a February 19 letter to the leadership of the CalSTRS and CalPERS boards, Mr. Chiang called for greater efforts at corporate board diversity, including the expansion of the definition of diversity to include sexual orientation and gender identity.

“The ‘Mad Men-era’ of corporate leadership – which undervalued the role and contributions of women, LGBTs and persons of color – is coming to a close. Today, there is growing agreement that a diverse corporate board is vital for business,” Mr. Chiang said. “Boards with directors who possess a wide range of skills and experiences are better positioned to oversee company strategy, risk mitigation, and management performance. Companies wishing to remain competitive in the new global economy will benefit from drawing on diverse experiences and perspectives that reflect a changing customer base.”

“Today’s action enhances an approach CalSTRS has recognized for some time that diversity adds value to board performance by injecting the multiplicity of views that accompany gender, ethnicity, experience and educational differences. That effectiveness is strengthened by including sexual orientation and gender identity and we commend Treasurer Chiang for advocating it,” said CalSTRS Chief Executive Officer Jack Ehnes. “We understand all too well the value of diversity on the performance of our portfolio companies, which comprise our $111.2 billion global equity portfolio. Their success is a linchpin to our ability to secure the financial future of California’s educators.”

CalSTRS has a history of pushing for greater board diversity in its portfolio companies. Some examples include:

  •     In 2015, CalSTRS signed on with eight other large public pension funds to call on the Securities and Exchange Commission to adopt a rule requiring corporate disclosure of board nominees’ gender, racial/ethnic diversity, and their mix of skills, experiences and attributes.
  •     CalSTRS led a 2014 initiative with the 30-Percent Coalition in which asset owners managing more than $3 trillion sent letters to 100 companies in the Russell 1000 Index that lacked women directors, urging them to embrace gender diversity.
  •     In 2014, CalSTRS, in coordination with CalPERS, offered 131 California companies their combined expertise to find and place women on their all-male boards. Within four months, 39 companies had responded to the letter and 23 companies added at least one woman to their boards of directors.
  •     In the run-up to Facebook’s 2012 IPO, CalSTRS objected to the company’s intent to field an all-male board of directors. The company subsequently seated its Chief Operating Officer, Sheryl Sandberg, and Gates Foundation CEO Susan Desmond-Hellman, as directors.
  •     CalSTRS’ 2012 establishment of the Diverse Director Datasource, along with CalPERS, as a resource for any company looking to find qualified and diverse director candidates.
  •     The 2009 partnership with Stanford University and other institutional investors to sponsor a conference on board diversity, keynoted by then SEC Commissioner Luis A. Aguilar.
  •     The 2009 CalSTRS withdrawal of proposals with Digital River, Hansen Natural, Waddell and Reed, Kirby Corp., Eagle Materials and Helix Energy after the companies agreed to actively consider diversity as a criterion in their board member recruitment process.

“Our efforts at board diversity are ongoing and ever changing, and that is reflected in our Corporate Governance Principles’ most recent update to the diversity definition that includes sexual orientation and gender identity, outlined by California Treasurer John Chiang,” said CalSTRS Corporate Governance Director Anne Sheehan. “We will continue to update our definition to ensure we are reaching the broadest pool of individuals who have the potential to sit on the boards of companies in which CalSTRS is invested.”

The Investment Committee also approved language in the Corporate Governance Principles on executive compensation in which shareholder votes against a company’s compensation plan trigger votes against the company’s compensation committee. The language also requires that compensation committees have a process for measuring the effectiveness of the compensation program, and mandates independent directors have a certain level of equity ownership in the company.

The California State Teachers’ Retirement System, with a portfolio valued at $190.8 billion as of February 28, 2015, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California's 879,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts. Follow us on Twitter @CalSTRS

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