NBIM Sets Board Diversity Goals

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Stockholm (NordSIP) – The role of diversity in corporate and investment management is an ongoing source of debate across society. In a very balanced position paper, Norges Bank Investment Management (NBIM) lays out both sides of the argument, before landing in favour of diversity.

On the one hand, diverse boards enjoy broader legitimacy, diversity may be a sign of an effective nomination process and, perhaps most importantly, it may improve decision-making.  On the other hand, some argue that a link between diversity and company performance has not been established by rigorous academic research and diversity requirements may crowd out other board criteria. Another argument against promoting diversity is that companies will embrace diversity without shareholder involvement.

- Promotion -

Having considered the arguments, NBIM has decided to treat “board diversity as a contribution to the overall effectiveness of the board and an indication of an effective board nomination process. Diversity will likely bring additional perspectives and approaches to the board’s discussions and ultimately improve the quality of its decision-making process. While there are many different dimensions to diversity, we are particularly concerned by persistent underrepresentation of women on boards.”

To carry out this new vision, NBIM has decided that the “board should have a suitable gender balance. Boards where each gender is not represented by at least 30%, should consider setting targets for gender diversity and report on their progress towards this target.” On average, 26% of board members are female in G7 countries. In Europe, regulatory requirements vary between 30% and 40%.

The position note argues that the board should have a formal nomination process to identify potential candidates who can contribute to diversity and that that process should include a thorough candidate search that includes a broad set of people with different backgrounds.

To avoid group thinking and bring a diversity of thought to board discussions, the position note also advises that the board should regularly assess whether it collectively has the right mix of competencies and backgrounds.

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