Editorial - October 2009

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Broadening the talent pool

Currently, the California Public Employees Retirement System (CalPERS) is in partnership with the California State Teachers’ Retirement System (CalSTRS) aiming to develop a diverse pool of talent for shareowners to nominate to boards. CalPERS and CalSTRS have hosted workshops with participants ranging from shareowners, diversity groups, companies, experts and practitioners to collectively construct a process to meet this goal.

In his opening speech to the first workshop John Chiang, California State Controller, talked about the crucial importance of diversity on corporate boards and the importance of widening the pool of talent.

‘When we talk about board diversity, we are talking about more than the traditional notions of gender, age, nationality and race. We are talking about a broader range of thoughts, perspectives, and competencies that define good leadership teams. It is about getting past the country club mentality and avoiding the common play-books that can lead to catastrophes in the marketplace.’

As a result of the initiative, the workshops have identified the obstacles to broadening the talent pool and identified strategies to move forward in widening the background and experience of board members.

From the shareholders perspective companies need to be thinking about how to achieve long-term success. Companies need different combinations of talent at different stages of their development but boards can become too settled. They can descend into ‘group think’ or lose the will to challenge an executive.

‘Diversifying the board is about adding dynamic conversations, avoiding the “check-the-box” mentality, and recognising that business in the twenty-first century is a global game. Boards can bring new perspectives into the mix, and draw upon experience which is relevant in a multicultural world where customers, suppliers and investors will be from around the globe.’

The workshops have been timed to coincide with the advent of shareholders being potentially on the brink of having the ability to nominate directors to corporate boards.

'This is a historically significant reform that will enable investors to hold boards accountable. If this rule is approved, nominating directors will be a big step for shareholders that will strengthen accountability and also require a higher level of engagement. And proxy access will give shareholders the opportunity to ensure that boards recognise that diversity can give them a competitive advantage,' Mr Chiang went on to explain.

'We would run the risk of repeating history if shareowners used proxy access to only vote “no” when presented with a failing board. The key to avoid being seen as a wrecking ball is to show that you know how to build a company up rather than just be good at knocking it down. Doing what is good means being able to deliver an alternative. It is not effective or responsible for shareowners to wait for the Annual General Meeting and hope they can just vote down candidates offered up by management. We need a pool of talent which is diverse, international in experience, and at its core qualified in order to deliver for owners. And we have other channels at our disposal that will foster open and honest dialogue between shareowners and the corporate community – we have opportunities in our conversations with nominating committees, we have engagement, and when we vote “no” or withhold our vote from boards we should be thinking positively about how we can help lead companies to fish from this pool of talent for recommendations. We know we get nowhere when we are the lone voice shouting from the rooftop, and we are more successful when use our voice in the process to offer up a solution.'

The challenges for the working group set up as a result of the workshop were identified as follows:

The logistics of how to put this pool of talent together;
Ensuring the highest standards of integrity and quality to the process;
Complementing rather than competing with existing sources;
Drawing upon all the relevant sources of expertise;
Being inclusive, with input from shareowners, director organisations, diversity groups, specialists and experts in the field.

The working group’s practical task will then be to map out a proposal for setting up the ‘new pool of talent’ – and giving it a name.

For further developments go to the CalPERS corporate governance website at www.calpers.ca.gov

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