The sexual harassment scandal has shaken the media, entertainment and political worlds, and has now been dragged into the institutional investment world by California State Treasurer John Chiang, who is urging CalPERS and CalSTRS to join the fight against it through corporate governance.
Mr. Chiang urged the funds to put pressure on the corporate boards of companies in which they invest to increase the diversity of their ranks to 30% women and 30% other representatives in terms of sexual orientation, and cultural and ethnic backgrounds. He argues this would help address the problem of sexual harassment.
"The only way to change the status quo … is to change the power structure in corporate America by putting more women and minorities on the board of directors," he wrote in a letter to the investment chairmen of the pension funds.
Mr. Chiang wants the pension systems to tell companies they will consider withholding proxy votes, or even voting no against all board members if they are not progressing toward "30 and 30" by the 2019 proxy season.
Certainly, corporate boards need more diversity. In the U.S., women make up only 18% of corporate directors, according to a Morgan Stanley report on diversity, compared with 24% in Europe. However, in Europe, female representation has increased on boards, but not at the executive, manager or employee levels.
On the other hand, gender pay gaps for directors and executives have been smaller in North America than in Europe or Asia-Pacific over the past 10 years, the report said.
But Mr. Chiang's suggestion is simplistic. What is needed is greater diversity throughout corporate America, and especially at executive and manager ranks. Boards of directors are too far removed from the arena where such harassment takes place to directly address that issue.
Greater diversity at the manager and executive level will reduce the possibility that such behavior will go unreported and unpunished. Reports of such behavior must land on the chief executive's desk, and it would be a foolish CEO who would not immediately investigate those claims.
Eliminating sexual harassment likely would increase productivity, because such behavior must hurt morale and work effort by those affected and those witnessing it.
