The New York City Pension Funds’ (NYC Funds) “Boardroom Accountability Project 2.0” (BAP 2.0), an initiative that pushes for electing more diverse directors on the boards of public companies, has achieved engagement with over 85 of the 151 U.S. companies it has targeted, since the inception of the campaign. Over 35 of those companies are now disclosing not only their board members’ qualifications and skills, but also details about boardroom gender and racial/ethnic diversity–information, which until recently, rarely made it to public view. While disclosure doesn’t always result in the election of more women or minority directors, it does shine a light on where companies stand. “Disclosure can help show that these boards ‘walk the walk’ when it comes to their commitment to boardroom diversity,” said New York City Comptroller Scott M. Stringer.
Since the launch of BAP 2.0, in September 2017, at least 49 targeted companies have elected to their boards 60 new, diverse directors who identify as a woman or person of color – including 45 women, 16 African Americans, four Hispanic Americans, and two Asian Americans. Also, 24 targeted companies have now publicly committed to include women and people of color in the candidate pool for every board search going forward, according to a spokesperson for the Comptroller.
Comptroller Stringer is spearheading the project along with the NYC Funds, which include the New York City Employees’ Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Pension Fund and the Board of Education Retirement System.
To supplement the impact of the initiative, NYC Funds submitted shareholder proposals to six particular companies that had a history of poor disclosure, requesting that they provide a directors’ matrix—a table documenting boardroom composition with information on individual board member skills, as well as attributes such as gender and race/ethnicity. The proposals were withdrawn from five of the companies that agreed to provide the requested disclosures. Energy company ExxonMobil was the only one that refused to adopt the disclosures.
Disclosure can help show that these boards ‘walk the walk’ when it comes to their commitment to boardroom diversity.
Shining a light on Board nomination procedures
An additional goal of BAP 2.0 is to locate the underlying reasons for the persistent lack of diversity on corporate boards. Comptroller Stringer’s office attributes it to the obscure nature of board nominations and elections that often end up locking out women and people of color. “Today’s persistent lack of diversity on corporate boards is largely due to a nomination and ‘election’ process that is effectively controlled by the existing board — and as a result, more akin to a coronation,” according to a press release put out by Comptroller Stringer’s office.
The result has been a continued lack of diversity. At S&P 500 companies, for example, just 21% of board members in 2016 were women, 7% were African American, 3% were Asian, and 2% were Hispanic.
“This disparity exists despite studies that show diverse groups make better business decisions,” said the spokesperson. (see related story) Those decisions can often lead to greater profits. In fact, the NYCPF is banking on it. “Greater diversity can bring more creativity into the boardroom, it helps avoid ‘group-think,’ and most importantly, it builds a stronger and more qualified board. This is about bringing the best and brightest into the boardroom to support the long-term value of these companies,” said Comptroller Stringer.
NY State Funds Vote “No” to All Male Boards
In March of this year, the New York State Comptroller Thomas P. DiNapoli announced that the New York State Common Retirement Fund plans to vote against all board directors standing for re-election at companies that have no women on their boards. In situations where a company has just one woman on its board, the fund will vote against members of the board’s governance committee standing for re-election. “It is unconscionable that hundreds of publicly-held U.S. companies have no women directors,” DiNapoli said in a press release. “We’re putting all-male boardrooms on notice – diversify your boards to improve your performance,” he said.
Thirty Percent Coalition
Another organization that has achieved identifiable results in increasing the number of women on company boards is the Thirty Percent Coalition. The Coalition’s members include institutional investors and private equity firms, representing $4 trillion in assets under management. Following its “Adopt a Company” campaign, 38 companies have added a woman to their board for the first time during the past proxy season, in January 2018, according to Charlotte Laurent-Ottomane, executive director of the organization.
Since the campaign launched in 2012, the Coalition has been instrumental in encouraging 189 companies to appoint a woman to their boards. “We are working to affect change and drive demand for board and senior leadership that reflects the racial/ethnic and gender diversity of the US workforce,” said Laurent-Ottomane.The campaign identifies those companies in the Russell 1000 Index with no women on their boards–the investors then select companies from this list which are in their investment universe to engage with–or to “adopt” for dialogue surrounding increased disclosure in their governance documents and the eventual appointment of a female candidate, she explained.
The organization also helps companies find qualified women board candidates through its partner advocacy organizations. “What has happened during the last year is really exciting,” she said. “For the first time, we are able to supply the demand we are creating.” As part of their engagement, the Coalition’s investors also ask companies to include language in their nominating and governance charter committing to diversity that is inclusive of race/ethnicity and gender.
Members of the Coalition include some of the largest pension funds in the country, including California State Teachers Retirement System (CalSTRS), New York Common Retirement Fund, UAW Retiree Medical Benefits Trust, Washington State Investment Board and private equity firms Apollo, KKR, TPG Capital, Vista Equity Partners and Insight Venture Partners.
We are working to affect change and drive demand for board and senior leadership that reflects the racial/ethnic and gender diversity of the US workforce.
BAP 1.0 still going strong
Board diversity is not a new issue for the NYC Funds. The initial phase of its Boardroom Accountability Project began back in 2014. It was “fought company-by-company to make ‘proxy access’—the right of large, long-term shareowners to nominate corporate board candidates on a company’s ballot—a market standard,” according to a press release from Comptroller Stringer’s office.
When the project began, just six U.S. companies embraced proxy access. As of June 2018, more than 520 do, including over 65% of the S&P 500. Also, over the past three years, at least 27 of the 51 companies that Comptroller Stringer targeted for proxy access—due to inadequate board diversity—have added at least 43 directors who are women, non-white, or both, and Exxon added a climate scientist to its board.
Since the launch of the NYC Fund’s BAP 2.0 initiative, over 25 companies now provide meaningful disclosure about their annual board evaluation processes to ensure that their current directors – individually and in the aggregate–remain of the highest quality and that their boards are refreshed on an ongoing basis. “Companies should cast their net widely and look for qualified directors in untraditional places. That’s how they’ll find high-quality candidates who can strengthen their boards and boardroom discussions,” said Comptroller Stringer.
Rooney Rule brings diversity
Many companies have also committed to include women and minority candidates in the board selection process by enacting a form of the “Rooney Rule.” The Thirty Percent Coalition, in fact, has been pressuring companies to adopt it. “Once they do that, it translates into Board appointments, because once you commit to it in writing, then you almost have to do it,” Laurent-Ottomane said. “The culture of a company starts in board room. If you have a diverse board, you are more inclined to have female leadership,” she added.
The original Rooney Rule is a National Football League policy that requires league teams to interview ethnic-minority candidates for head coaching and senior football operation jobs. It was established in 2003, and variations of the rule are now in place in other industries.
Pushback from some, open arms from other
While most of the companies targeted have been open to having a discussion with the NYC’s Comptroller’s office on the topics of proxy access, diversity and transparency, other have not been as welcoming. The spokesperson noted that in some cases, board members were more open to changes than management teams initially were.
On occasion, these types of conversations can become uncomfortable, especially when they entail decisions about not re-nominating a current board member. According to the Comptroller’s office, several companies shared that if their board members no longer have the capability or availability to serve on the board, they wouldn’t be re-nominated next year. “Every seat is important,” said Comptroller Stringer. “We’re asking each board to explain its story of how each member contributes, and how they fit together as a whole. That’s where the Matrix comes in.”
In 2019, the Boardroom Accountability Project will continue to engage with more companies.