In this article, you'll see how Norwegian sovereign wealth funds can make a social impact through their investments, and what solutions the MIT Sloan School of Management proposes to help corporate boards more effectively practice diversity and inclusion behaviors and set targets.

Chief Compliance Officer Carine Smith Ihenacho recently revealed in an interview with Nikkei Asia Weekly that the company will strictly require the proportion of female directors in Japanese investment targets this year, and if necessary, it will exercise veto power against all-male board nominations.

The Fund also recommends that at least 30 per cent of board members of either gender should be present. They believe that a good gender ratio will give the board a broader perspective to make better decisions.

Norwegian fund company recommends 30% of directors of either gender

The Norwegian Government Pension Fund Global, managed by Norges Bank Investment Management (NBIM), is the world's largest sovereign fund with a size of $1.26 trillion and invests in more than 1,500 publicly offered companies in Japan.

It's worth noting that in Japan, women hold only about 10% of a company's board seats on average, which is a clear distance from the 30% recommended by the NBIM. Carine Smith Ihenacho said Japan lags far behind many other developed countries in terms of gender ratio on boards. At present, the proportion of female members on the board of directors of Taiwan's listed companies is about 14%.

The proposed reforms by Norway's sovereign wealth fund are roughly estimated to result in as many as 300 listed Japanese companies without female boards failing to pass a vote on their boards at the upcoming shareholders' meeting in June.

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CARE model: embodied DEI tissue development

Creating a culture of diversity and inclusion is just as important to organizations today as anticipating future risks in the industry. When a diverse director actively demonstrates that they care about the value of diversity and inclusion, they are more likely to create an environment where diverse voices can be heard.

However, even if companies know the value of DEI, how specifically should they cultivate an organization with DEI value?

The CARE model offered by the MIT Sloan School of Management may be the answer.

The CARE in the CARE model represents four key elements: composition, activation, review and report, and ecosystem.

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Composition: Composition

One question: Does the composition of the board of directors show diversity in the composition of shareholders? Organizations can shape a diverse and inclusive organizational culture by:

1. When nominating board members, look at diversity in a variety of ways – professional ability, experience, age, race, gender, etc. That is, it is not enough to focus on only one form of diversity; Hiring minorities that don't meet the board's current needs just to comply with regulations is not the best solution. To avoid the expression of pluralism and communion being symbolic, when nominating, you can ask yourself what value you can bring by hiring this person besides balancing the demographic composition of the organization?

2. According to the needs of each professional knowledge member, find suitable talents, there is no limitation of only finding experienced people, for example, consumer organizations may seek sales ability talents; Organizations with international operations seek directors with a geopolitical background. , in order to expand the board's understanding of different areas through different perspectives.

Activation: Incentive

One question: How to create psychological safety for board members to stimulate different perspectives?

"Change doesn't happen easily without agitation, questions and prompts." Organizations can encourage and stimulate more diverse and inclusive voices within the organization by:

1. Conduct education on DEI topics: Board members have limited understanding of DEI, so the ability and willingness to motivate dissenting opinions to take action is critical. DEI thought leaders from academia or other companies may be invited to engage with board members to provide learning opportunities about DEI.

2. Leaders must learn to listen to all voices and create an environment that encourages board members to share their ideas and perspectives, and existing board members can invite new members with different backgrounds and experiences to see from an outsider's perspective what leaves room for improvement in the established organization.

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Review and Report

One question: What process does the board use to review board activities and report them to shareholders?

Natalie Cooper, a member of Deloitte's Board of Directors, said, "Producing a retrospective report helps the board identify existing organizational problems and take conscious action." When producing reviews and reports on diversity and inclusion, organizations should pay attention to the following aspects:

1. Data and statistical reporting: A meaningful review of the report, in addition to reviewing data including gender, race, age, sexual orientation, etc., can further explore the factors on which decisions to change the composition of the board are made? Is it to achieve diversity inclusion, or simply retire current board members... to assess the true distance between the board and diversity.

2. Transparent reporting of results: Some listed companies are disclosing information about their board of directors, including the selection process, methods and objectives. In addition to facilitating accountability, this also drives organizational progress.

Ecosystem: Ecosystem

A question to understand the E in CARE: Is the organization sure that the organization and the interaction with upstream and downstream manufacturers are in line with diversity and inclusion?

The board of directors has the responsibility to promote the development of diversity and inclusion inside and outside the organization, and in order to expand the attention of the industry chain to diversity and inclusion, organizations should be more conscious of confirming their degree of diversity and inclusion when looking for upstream and downstream suppliers.

Because even an organization has a diverse board of directors. Without attention to whether partners meet the benchmarks for plural inclusion, the occurrence of pluralistic inclusion is still limited to the organization and does not extend to the labor market or even society as a whole.

The CARE model provides a path to building a diverse board, and with rules to follow, now may be the time for organizations to try to move towards diversity!