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November 05, 2002
Connecticut Initiative Promotes a Better Bottom Line Through Diverse Boards
    by Willliam Baue

The Connecticut Board Diversity Initiative cites academic research to document the positive financial value of diverse boards of directors, in addition to their social value.

The new corporate governance standards at the New York Stock Exchange (NYSE), currently awaiting approval from the Securities and Exchange Commission (SEC), require listed companies to achieve a majority of independent directors on their boards within 24 months. The next two years will therefore be filled with recruitment activity as companies seek individuals qualified to sit on their boards. Seizing this opportunity to promote greater board diversity, Connecticut State Treasurer Denise L. Nappier announced late last month the launching of the state's Board Diversity Initiative.

"There is an historic and unprecedented opportunity for greater diversity on America's corporate boards," said Treasurer Nappier, who is the principal fiduciary of the $18 billion Connecticut Retirement Plans and Trust Funds (CRPTF). "With hundreds of corporate boards looking to add new members, there is a real chance, as never before, to add diversity to the board room and new strength to the bottom line."

By design the Initiative promotes a progressive social agenda of cultural diversity. But it simultaneously fuels the good old-fashioned profit motive, as evidenced by research that shows diverse boards enhance the bottom line. Recent academic papers from Oklahoma State University, the University of Delaware, and Florida A&M find positive relationships between a company's market value and the diversity of its corporate board and upper-management.

"It has been shown that added diversity and independence helps a company's bottom line, and increasing diversity in the boardroom to better reflect a company's workforce, customers and community is ultimately in the best interest of shareholders and our economy," Treasurer Nappier said.

The Initiative seeks to inform companies about the value of diverse boards and to promote greater diversity on boards that currently lack it. It also intends to educate individuals who fit a broad definition of diversity (including not only gender and ethnicity but also sexual orientation and disability, among others) about opportunities to serve on boards.

The Initiative gathers many different voices from the business community in Connecticut. The member-organizations include the Connecticut Business and Industry Association (CBIA) and the regional chapter of the National Association of Corporate Directors (NACD), among others. The Initiative has also welcomed into its fold member-organizations of an existing project promoting diversity on non-profit and public boards, "Reflecting Connecticut/Reflejando a Connecticut". These organizations include the African-American Affairs Commission, the Puerto Rican Affairs Commission, Democracy Works, and the Permanent Commission on the Status of Women (PCSW).

Governance and Public Policy ArticlesAccording to a 2001 PCSW survey, the Board Diversity Initiative has its work cut out for it, as almost half (49 percent) of the top 100 public companies in Connecticut had no women on their boards.

"We have a particular problem with small- and mid-sized companies being less diverse," CRPTF Assistant Treasurer for Policy Meredith Miller told The Initiative therefore specifically reaches out to promote diversity at these companies.

Perhaps the most important function of the Board Diversity Initiative is to serve as a template and an incentive for other states.

"This is like [the saying from the Kevin Costner film Field of Dreams]--'If you build it, they will come'," said Ms. Miller.


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