When it comes to investing, the research is clear: diverse groups make better decisions. That’s why for many years, the New York City Pension Funds have been leaders in advocating for increased representation of women and people of color, and of diverse skills and experience, in the all-too-often homogeneous board rooms of corporate America. Last week, a new milestone was reached, as the City’s Funds became one of the first major U.S. institutional investors to approve an LGBT-inclusive director standard for the companies in which they invest billions of dollars.
This announcement is the latest step that the pension funds have taken to encourage greater diversity throughout their portfolio companies, from the board room to the workplace and throughout the supply chain. But the ability to spur real change will require similar steps from other investors and from companies themselves.
Too many U.S. companies overlook valuable potential in the LGBT community when selecting corporate directors. Investors pay a price for this lack of inclusion, because placing LGBT people at the most senior levels of leadership can markedly boost bottom lines. Data compiled by Credit Suisse show that investment returns are 10 percent higher at LGBT-friendly companies – Out Leadership aptly calls this the “Return on Equality.”
Unfortunately, Out Leadership counts fewer than 10 openly LGBT directors on the boards of Fortune 500 companies, and only two Fortune 500 boards include sexual orientation and gender identity in their definition of board diversity. Change cannot come quickly enough to these companies, because their composition does not reflect the diverse world in which we live.
But diversity isn’t just important in the boardroom. Visible LGBT leadership from the top down helps build inclusive work environments, and Out Leadership’s research has shown that LGBT employees are 85 percent more likely to come out at firms where senior executives do the same. Sadly, we’re a long way from meeting these goals.
Thirty-seven percent of LGBT employees in the U.S. have experienced workplace harassment in the last five years, and more than half of LGBT employees who believe there are homophobic people in their workplace remain closeted at work. Closeted employees are more likely to leave their companies, and they’re less productive. Fostering workplace cultures where LGBT employees don’t feel comfortable is more than just bad management; it’s bad business.