A Summary of Certain Proxy Advisory Firm and Institutional Investor Board Diversity Policies

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Institutional investors and proxy advisory firms continue to develop and refine their policies regarding board diversity. While gender diversity on public company boards has been in focus for some time now, institutional investors and proxy advisory firms are also increasingly focusing on racial and ethnic diversity as part of their evolving approach to board diversity.

This post is a summary of published board diversity policies of certain institutional investors and proxy advisory firms into a singular resource for ease of reference. Below the initial breakdown, certain policies concerning board diversity shareholder proposals are described. 

2021 Board Diversity Policy Summary Chart – Proxy Advisory Firms/Institutional Investors (as of March 24, 2021)

ISS (11/19/2020)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes
For companies in the Russell 3000 or S&P 1500 indices, generally vote against or withhold from the chair of the nominating committee (or other directors on a case-by-case basis) at companies where there are no women on the company’s board.  An exception will be made if there was a woman on the board at the preceding annual meeting and the board makes a firm commitment to return to a gender-diverse status within a year.

Current policy:

For companies in the Russell 3000 or S&P 1500 indices, highlight boards with no apparent racial and/or ethnic diversity

Policy effective for meetings on or after Feb. 1, 2022:

For companies in the Russell 3000 or S&P 1500 indices, generally vote against or withhold from the chair of the nominating committee (or other directors on a case-by-case basis) where the board has no apparent racially or ethnically diverse members. An exception will be made if there was racial and/or ethnic diversity on the board at the preceding annual meeting and the board makes a firm commitment to appoint at least one racial and/or ethnic diverse member within a year.

Boards should be of a size appropriate to accommodate diversity, expertise, and independence, while ensuring active and collaborative participation by all members. Boards should be sufficiently diverse to ensure consideration of a wide range of perspectives.

See below for board diversity shareholder proposal policies.

Glass Lewis (11/24/2020)  |  Approach to Diversity Disclosure Ratings (12/20)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity / Additional Notes

Current Policy:

Will generally recommend against the nominating committee chair of a board that has no female members and will note as a concern boards consisting of fewer than two female directors.

Beginning with shareholder meetings held after January 1, 2022:

Will generally recommend voting against the nominating committee chair of a board that has fewer than two female directors. For boards with six or fewer total directors, existing voting policy requiring a minimum of one female director will remain in place.

Glass Lewis will recommend in accordance with board composition requirements set forth in applicable state laws when they come into effect.  For example, California Senate Bill 826 (requiring all companies headquartered in the state of California to have at least one woman on their board, and, by the end of 2021, California companies must have at least two women on boards of five members and at least three women on boards with six or more directors) and Assembly Bill 979 (requiring companies headquartered in California to have one director from an “underrepresented community” on their board by the end of 2021, and, by the end of 2022, California companies must have at least two such individuals on boards of five to eight members, and three such individuals on boards of nine or more members).

Glass Lewis will begin tracking the quality of diversity disclosure in companies’ proxy statements. Beginning with the 2021 proxy season, Glass Lewis will reflect how a company’s proxy statement presents: (1) the board’s current percentage of racial/ethnic diversity; (2) whether the board’s definition of diversity explicitly includes gender and/or race/ethnicity; (3) whether the board has adopted a policy requiring women and minorities to be included in the initial pool of candidates when selecting new director nominees (aka Rooney Rule); and (4) board skills disclosure. Glass Lewis will not be making voting recommendations solely on the basis of this assessment in 2021; however, such ratings will help inform their assessment of a company’s overall governance and may be a contributing factor in their recommendations when additional board-related concerns have been identified.

Council of Institutional Investors (CII) (9/22/2020)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes
CII supports a diverse board. CII believes a diverse board has benefits that can enhance corporate financial performance, particularly in today’s global marketplace. Nominating committee charters, or equivalent, ought to reflect that boards should be diverse, including such considerations as background, experience, age, race, gender, ethnicity, and culture.

BlackRock (12/2020)  |  (Board Diversity Engagement Priorities (3/2021))

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes
Encourages companies to have at least two women directors on their board.

BlackRock recognizes that diversity has multiple dimensions. In identifying potential candidates, boards should take into consideration the full breadth of diversity, including personal factors, such as gender, ethnicity, race, and age, as well as professional characteristics, such as a director’s industry, area of expertise, and geographic location.

BlackRock expects boards to disclose their approach, actions, and progress towards achieving diverse representation, including the demographic profile of the incumbent board, including, but not limited to, gender, ethnicity, race, age, and geographic location, in addition to measurable milestones to achieve a boardroom reflective of multi-faceted racial, ethnic, and gender representation.

To the extent that a company has not adequately accounted for diversity in its board composition within a reasonable timeframe, based on BlackRock’s assessment, BlackRock may vote against members of the nominating/governance committee for an apparent lack of commitment to board effectiveness.

BlackRock expects boards to have credible responses to a range of questions that can demonstrate a robust approach to board diversity, including the following:

  • How the board’s composition reflects the diversity of the company’s key stakeholders, the company’s stated strategy, trends impacting the business and succession expectations.
  • The board’s evaluation process, including how it impacts board succession planning and the director appointment or nomination process.
  • The board’s approach to refreshment and the extent to which diversity is a consideration.
  • Steps the nominating committee (or equivalent) is taking to enhance board diversity; for example, having a slate that includes diverse candidates.
  • The director appointment or nomination process and how unconscious biases may be addressed.
  • If search firms or recruitment consultants are used to identify candidates, whether the nominating committee (or equivalent) assessed the consultant’s networks and expertise in finding and placing diverse directors, especially first-time directors.
  • How the board integrates the variety of perspectives its members bring to facilitate inclusive leadership.

State Street Global Advisors (3/2021)  |  (Racial Diversity Guidance (1/2021))

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes

State Street expects boards of Russell 3000 and TSX listed companies to have at least one female board member. If a company fails to meet this expectation, State Street may vote against the chair of the board’s nominating committee or the board leader in the absence of a nominating committee, if necessary. Additionally, for Russell 3000 listed companies, if a company fails to meet this expectation for three consecutive years, State Street may vote against all incumbent members of the nominating committee.

If a company in the S&P 500 does not disclose the gender composition of its board, State Street will vote against the chair of the nominating committee.

In 2021, State Street will vote against the chair of the Nominating & Governance Committee at companies in the S&P 500 and FTSE 100 that do not disclose the racial and ethnic composition of their boards.

In 2022, State Street will vote against the chair of the Nominating & Governance Committee at companies in the S&P 500 and FTSE 100 that do not have at least one director from an underrepresented community on their boards.

State Street views board quality as a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. State Street votes for the election/re-election of directors on a case-by-case basis after considering various factors, including board quality, general market practice, and availability of information on director skills and expertise.

NYS Comptroller (2/25/2021)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes

The NYS Comptroller will withhold support from all incumbent board nominees if there are no women on the board.

Additionally, the NYS Comptroller will withhold support from incumbent nominating committee nominees when a board does not have more than one woman director.

The NYS Comptroller will vote against the following directors at S&P 500 companies:
  • All incumbent directors at companies with zero directors identifying as an underrepresented minority on their board.
  • All incumbent nominating committee directors at companies with just one director identifying as an underrepresented minority. Nominating committees are responsible for nominating new board directors.

The NYS Comptroller will scrutinize boards that are not sufficiently diverse, including diversity of age, race, gender, ethnicity, sexual orientation and gender identity, geography, and disability. A determination that a board is not sufficiently diverse may result in the NYS Comptroller withholding support from incumbent board nominees.

The NYS Comptroller will also vote against the following directors at S&P 500 companies:

  • Board chairs and incumbent audit committee members at companies that do not disclose the individual racial/ethnic diversity of their board directors.
  • All incumbent nominating committee members at companies that have not made both gender and racial/ethnic diversity explicit considerations in their search for directors.
  • All incumbent directors at companies that failed to adequately respond to the NYS Comptroller’s August 2020 letter requesting information on diversity, equity and inclusion practices.

The NYS Comptroller will also encourage its portfolio companies to disclose whether directors identify themselves as LGBTQ+ or a person with a disability, with the goal of further expanding its voting policy during the coming years.

NYC Comptroller (2/2019)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes
Boards should be composed of directors who, collectively, are best equipped to effectively oversee the company’s strategy for creating and protecting firm value. Accordingly, the NYC Comptroller encourages board diversity. Diverse perspectives, skills, expertise, and backgrounds may enhance the board’s decision-making and ability to exercise prudent oversight on shareowners’ behalf, as well as better position the board to pursue market opportunities. The NYC Comptroller views diversity broadly and believes diverse boards may encompass considerations such as professional background, expertise, skills, age, race, gender, ethnicity, geography, sexual orientation, and gender identity. Director attributes should be relevant to the company’s business and enhance the board’s capacity to effectively oversee strategy and risk, including operational, regulatory, climate-related and environmental, human capital, macroeconomic, and financial risks. Board nominating policies and practices should define and reflect the board’s view of diversity.

Vanguard (4/1/2020)  |  (Board Diversity Guidance (12/2020))

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes

Vanguard’s primary interest is to ensure that the individuals who represent the interests of all shareholders are independent, committed, capable, diverse, and appropriately experienced. Diversity of thought, background, and experience, as well as of personal characteristics (such as gender, race, and age), meaningfully contributes to a board’s ability to serve as effective, engaged stewards of shareholders’ interests.

Beginning at 2021 annual meetings, Vanguard may vote against directors at companies where progress on board diversity falls behind market norms and expectations. In such cases, Vanguard may hold nominating committee chairs or other relevant directors accountable.

See below for board diversity shareholder proposal policies.

J.P. Morgan (4/1/2020)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes

J.P. Morgan expects its investee companies to be committed to diversity and inclusiveness in their general recruitment policies as J.P. Morgan believes such diversity contributes to the effectiveness of boards. J.P. Morgan will utilize its voting power to bring about change where boards are lagging in gender and ethnic diversity.

See below for board diversity shareholder proposal policies.

Fidelity (2/2021)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes
Fidelity will evaluate board composition and generally will oppose the election of certain or all directors if there are no women on the board or if a board of ten or more members has fewer than two women directors.

See below for board diversity shareholder proposal policies.

Goldman Sachs Asset Management (3/2020)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes
Vote against or withhold from the Nominating Committee if the board does not have at least one woman director.

When evaluating board composition, Goldman Sachs believes a diversity of ethnicity, gender and experience is an important consideration.

See below for board diversity shareholder proposal policies.

CalPERS (9/2019)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes
On a case-by-case basis, where its engagements are not successful, CalPERS will withhold votes from directors who are nominating/governance committee members, board chairs, or long-tenured directors (greater than 12 years on the board) on boards which lack diversity and do not make firm commitments to improving the board diversity in the near term.

CalSTRS (11/2018)

Gender Diversity Board Policies Racial/Ethnic Diversity Board Policies Guiding Principles regarding Board Diversity/Additional Notes

CalSTRS believes the board should be composed of diverse individuals with the skills, education, experiences, expertise and personal qualities that are appropriate to the company’s current and long-term business needs. This diversity is critical in order for the board to properly oversee management, business strategy and risk mitigation. The board should establish a format to disclose the various skills, experience and backgrounds of board members and how those attributes enhance the long-term strategy of the company.

The director nomination process and policy should consider a diverse mix of skills, background, experience, age, gender, sexual orientation and identification, cultural and ethnic composition that are most appropriate to the company’s long-term business needs. The board should disclose the policies or procedures used to ensure board diversity. Diversity goals should include cultural diversity in addition to gender and/or race diversity. CalSTRS will hold members of the board’s nominating and governance committee and if necessary the entire board accountable if, after engagement about the lack of board diversity, sufficient progress has not been made in this regard.

2021 Board Diversity Shareholder Proposal Policies – Proxy Advisory Firms / Institutional Investors (as of March 24, 2021)

Proxy Advisory Firm/Institutional Investor Board Diversity Shareholder Proposal Policies
ISS (11/19/2020) Generally vote for requests for reports on a company’s efforts to diversify the board, unless the following criteria are met:
  • The gender and racial minority representation of the company’s board is reasonably inclusive in relation to companies of similar size and business.
  • The board already reports on its nominating procedures and gender and racial minority initiatives on the board and within the company.

Vote case-by-case on proposals asking a company to increase the gender and racial minority representation on its board, taking into account each of the following:

  • The degree of existing gender and racial minority diversity on the company’s board and among its executive officers.
  • The level of gender and racial minority representation that exists at the company’s industry peers.
  • The company’s established process for addressing gender and racial minority board representation.
  • Whether the proposal includes an overly prescriptive request to amend nominating committee charter language.
  • The independence of the company’s nominating committee.
  • Whether the company uses an outside search firm to identify potential director nominees.
  • Whether the company has had recent controversies, fines, or litigation regarding equal employment practices.

Vanguard (4/1/2020)

(Board Diversity Guidance (12/2020))

Vanguard will generally vote for a shareholder proposal if:
  • The proposal seeks disclosure related to directors’ diversity of personal characteristics (including gender, race/ethnicity, and national origin) or skills and qualifications, and this information is not already disclosed.
  • The proposal asks companies to adopt policies designed to ensure appropriate diversity on boards, and appropriate policies do not already exist.
  • The proposal is not overly prescriptive as to what skills should be included or how this information must be presented.
J.P. Morgan (4/1/2020) J.P. Morgan generally will vote case-by case on shareholder proposals which seek to force the board to add specific expertise or to change the composition of the board.
Fidelity (2/2021) Fidelity may support proposals on issues in other areas, including but not limited to equal employment, board diversity and workforce diversity.
Goldman Sachs Asset Management (3/2020) Generally vote FOR proposals requesting reports on a company’s efforts to diversify the board, unless the following criteria are met:
  • The gender and racial minority representation of the company’s board is reasonably inclusive in relation to companies of similar size and business.
  • The board already reports on its nominating procedures and gender and racial minority initiatives on the board.
CalPERS (9/2019) CalPERS generally supports diversity proposals requesting the company to provide additional information and disclosure at the board, management and employee levels, and where its diversity lags those of its peers or the population.
NYS Comptroller (2/25/2021) The NYS Comptroller will support proposals that request reporting on steps a company is taking to enhance board diversity.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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