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Two developments are having an impact on corporate decisions. One is the increased engagement by institutional intermediaries, and a shift in the focus of that engagement from corporate governance to environmental and social issues. The other is a heightened societal awareness of diversity, equity and inclusion (DEI) issues, particularly the importance of diversity in corporate leadership. This Article considers the intersection between the two. It describes how institutional investors have focused their attention on increasing diversity in corporate leadership, the potential motivations for that focus, and the impact of that focus, to date. It highlights the tensions that result from relying on institutional intermediaries to promote diversity. Institutional involvement in environmental, social, and governance (ESG) issues as a general matter raises a host of questions including the extent to which a fiduciary may appropriately trade off economic and non-economic considerations in its investment and engagement strategies. Diversity, however, raises distinctive concerns because the justifications for DEI initiatives are multifaceted and extend beyond firm-specific economic considerations to a broad range of societal objectives. This range of objectives creates challenges both in structuring diversity efforts and evaluating their success. While there is little doubt that the societal case for greater diversity in corporate leadership is compelling, to the extent that the rationale for diversity extends beyond demonstrable effects on firm-specific economic value, it is unclear that institutional intermediaries and their agents—those who make engagement and voting decisions on behalf of such institutions—are well-positioned to address those issues in terms of both accountability and institutional competence. The Article highlights the potential costs of existing institutional efforts and concludes by considering the effectiveness of existing tools of corporate governance in addressing those concerns.

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