The Midwest Investors Diversity Initiative (“MIDI”) is a 16-member alliance of institutional investors with more than $820 billion in assets under management and advisement. Their goal is to increase board diversity at Midwest-based companies. During the 2020-2021 season, MIDI engaged 21 companies. As a result, six of those companies appointed women or persons of color to their board of directors, and seven committed to adopting policies that prioritize diversity as a factor in candidate search processes. Since 2016, when the group was formed, MIDI has undertaken 75 company engagements. Ninety women and persons of color have received board appointments among the companies engaged, and 34 companies have adopted a diverse search policy.
“We know that diversity is good for business,” said Illinois State Treasurer Michael Frerichs, who leads MIDI. “We also know that change is hard, especially inside our nation’s boardrooms. However, many corporate leaders agree that diversity benefits their operations and board performance. Our focus is to help them navigate this change.” Frerichs believes by working together, MIDI can accomplish their goals and gain the corporation’s attention.
While corporations acknowledge the necessity of Diversity, Equity and Inclusion initiatives within their organizations, many do not know how to go beyond a “buzzword.” Frerichs says that MIDI helps companies navigate the many changes that need to occur, starting in the boardrooms. “When we find a board is homogenous, we engage with them as a shareholder. Since we are part owners, we believe we should have a say. Many times this works; however, if companies don’t want to communicate with us, we use our voting power as shareholders to vote against directors that are against adding diversity to their boards.”
MIDI is among the first investor initiatives to call for racial and ethnic diversity, in addition to gender diversity. MIDI offers guidance and tools to help companies take steps to diversify their boards, working with company nominating and governance committees to:
- Adopt a policy for the search and inclusion of women and persons of color as board candidates;
- Require women and persons of color to interview for every open board seat (i.e., “The Rooney Rule”);
- Instruct third-party search firms to include such candidates in the initial pool; and
- Expand the candidate pool to include candidates from non-traditional sources.
Given the correlation between diversity and long-term outperformance, MIDI offers customized guidance to help companies take steps to diversify their boards, including the Diverse Search Company Toolkit and Examples of Candidate Diverse Search Language. These tools assist corporate boards in identifying best practices and resources related to various search policies, board composition strategies, succession planning, and skills matrixes.
Studies show that having a diverse, equitable, and inclusive company increases profits, but Frerichs says it also enhances innovation and creates new profitable opportunities. In addition, he said, “having a diverse board includes those bring people with different experiences and backgrounds. When everyone is from the same background, they are more prone to groupthink. People from different backgrounds tend to think differently and bring new ideas to the table”.
2020 and 2021 presented Corporate America with a unique opportunity to address inequities within their organizations. Frerichs says he’s optimistic that companies are beginning to understand the importance of DE&I initiatives in changing the culture of their organizations and increasing their profitability.
“A 2020 McKinsey report found that companies with higher levels of diverse representation on executive teams have a higher likelihood to outperform. McKinsey has reported this every few years, going back to 2015. The results show that companies with the highest levels for racial and ethnic diversity at the executive level outperformed by 36% in terms of profitability. So why wouldn’t an investor want a greater return on their money?”
MIDI collaborates with and complements the work of the Thirty Percent Coalition, with the majority of its participants being active members. Founded in 2011, the Thirty Percent Coalition is a national organization advocating for diversity on corporate boards, promoting women and people of color. Representing more than $7 trillion in assets under management, membership includes public companies, private equity, institutional investors, state treasurers, professional services firms, and advocacy groups working towards the shared goal of diverse boards.
Additional MIDI members include the Illinois State Board of Investment, Minnesota State Board of Investment, Ohio Public Employees Retirement System, School Employees Retirement System of Ohio, the SEIU Master Trust (Illinois), Wespath Benefits and Investments (Illinois), UAW Retiree Medical Benefits Trust (Michigan), Seventh Generation Interfaith Coalition for Responsible Investment (Wisconsin), Sundance Family Foundation (Minnesota), Treasurer of the City of Chicago (Illinois), Ariel Investments (Illinois), Trinity Health (Michigan), the Saint Paul & Minnesota Foundation and YWCA Metropolitan Chicago.
For more information on the Midwest Investors Diversity Initiative click here.