The lede from the WSJ is that “for the first time,” BlackRock (reportedly the largest asset management firm with $6.3 trillion under management) is “stating publicly that companies in which it invests should have at least two female directors.” According to the WSJ, the new disclosure, just one component of BlackRock’s recently posted Proxy Voting Guidelines for U.S. Securities (more on the guidelines to come in a later post), “represents a small but significant shift for one of the largest shareholders of American companies.” Board diversity has been a consistent issue for several large institutional investors in recent years but without much specificity, and reportedly, BlackRock has, in the past, quietly encouraged companies to have a minimum of two women on their boards. Now, BlackRock is trumpeting that standard publicly.
According to the article, BlackRock’s global head of investment stewardship recently sent letters to about 300 companies in the Russell 1000 with fewer than two women directors asking them to disclose their approaches to diversity and to establish a timeframe for improvement. The letter also cautioned that BlackRock believes that “a lack of diversity on the board undermines its ability to make effective strategic decisions. That, in turn, inhibits the company’s capacity for long-term growth.”
More specifically, the BlackRock voting guidelines regarding board composition make clear that BlackRock expects “boards to be comprised of a diverse selection of individuals who bring their personal and professional experiences to bear in order to create a constructive debate of competing views and opinions in the boardroom. In addition to other elements of diversity, we would normally expect to see at least two women directors on every board.”
In identifying candidates, BlackRock suggests that boards regularly assess the skills, performance and diversity of experience and expertise of current directors and consider how new directors might enhance them. BlackRock also encourages disclosure of board views on the “mix of competencies, experience, and other qualities required to effectively oversee and guide management in light of the stated long-term strategy of the company,” as well as the board’s process for identifying candidates, the board self-evaluation process and the consideration given to board diversity. If BlackRock believes “that a company has not adequately accounted for diversity in its board composition, [it] may vote against the nominating/governance committee members.”
Interestingly, BlackRock indicates that it is ”not opposed in principle to long-tenured directors, nor [does it] believe that long board tenure is necessarily an impediment to director independence. A variety of director tenures within the boardroom can be beneficial to ensure board quality and continuity of experience. [Its] primary concern is that board members are able to contribute effectively as corporate strategy evolves and business conditions change, and that all directors, regardless of tenure, demonstrate appropriate responsiveness to shareholders.”