Shareholders are valuing diversity.

• Author: Browder, Dorothea

With interest levels what they are, companies perceived not to be 'trying' to diversify their boards can expect acute owner scrutiny.

The number of women and minorities on corporate America's boards may be increasing, but not fast enough for some institutional investors. Thirty-one shareholder proposals this year ask companies to increase the diversity of the candidate pool from which directors are selected, up from just two in 1991.

This shareholder campaign on board diversity, which got its first push from religious investors, recently gained support from several major pension funds, and now the nation's largest pension system is filing its own resolutions.

The heightened campaign began in 1993, when several leading corporate governance activists publicly announced their intent to promote board diversity, including officials of the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF), the New York City pension funds and the State of Connecticut Retirement and Trust Funds. TIAA-CREF's Policy Statement on Corporate Governance, issued in October 1993, makes clear where the fund stands: a company's board "should be composed of qualified individuals who reflect a diversity of experience, gender, race and age."

In 1994, CREF filed its own resolutions for the first time; it negotiated withdrawals of seven of the proposals, and the one that went to a vote, a proposal to Altera Corp., garnered support from nearly 21% of the shares voted. Until 1993, all the board diversity proposals were withdrawn when companies agreed to take actions that satisfied the proponents. Three proposals came to votes in 1993 and six in 1994.

This year, CREF filed 15 board diversity proposals, and affiliates of the Interfaith Center on Corporate Responsibility, which coordinates most proposals by religious groups, filed 16. The basic resolution pending at most companies asks the company to make an effort to include more women and minorities in the pool of candidates for the board, set a timetable for implementing the policy, and report to shareholders on its efforts. At companies where the board already includes one or more women, the resolution is focused only on minorities. At two companies that do not already have independent nominating committees (made up of outside directors), a church-sponsored proposal asks that the company form such a committee.

How investors will vote on these proposals will sometimes come down to how they view the performance of the particular company at hand, and sometimes depend on the role they think companies should play generally in increasing board diversity. Considerable debate exists over both whether a diverse board is more valuable to a company and, if it is, how to diversify the board.

Women hold between 6% and 7% of the board seats in the Fortune 1000, up from 4% in 1986. Members of minority groups hold 3.3% of those companies' board seats, a figure that hasn't budged much in the last half-dozen years. Close to 60% of the Fortune 1000 companies had at least one woman board member in 1994, and nearly haft the boards in a 1994 sample of Fortune 500 boards...