You might recall that, in October last year, the Office of the NYC Comptroller launched its Boardroom Accountability Project 3.0, an initiative designed to increase board and CEO diversity. This third phase of the initiative called on companies to adopt a version of the “Rooney Rule,” a policy originally created by the National Football League to increase the number of minority candidates considered for head coaching and general manager positions. Under the policy requested by the Comptroller’s Office, companies were asked to commit to including women and minority candidates in every pool from which nominees for open board seats and CEOs were selected. Last week, Stringer announced the initial results of the initiative.
To launch Project 3.0, the Comptroller’s Office sent a letter to 56 companies in the S&P 500 that did not have a Rooney Rule policy requesting that they adopt one. For the Spring 2020 proxy season, the Office also submitted shareholder proposals requesting adoption of the Rooney Rule to 17 companies that the Comptroller’s Office had identified as “lack[ing] apparent racial diversity at the highest levels.” The Rooney Rule policy required that the initial pool of candidates from which management-supported board and CEO candidates are chosen include qualified female and racially/ethnically diverse candidates and that “director searches include candidates from non-traditional environments such as government, academic or non-profit organizations in order to broaden the pool of candidates considered.” According to the letter, the Rooney Rule does not “dictate who should be hired and does not mandate an outcome. It does however, widen the talent pool and require the inclusion of a diverse set of candidates for consideration.” One effect of the new policy would be to broaden the search to include non-traditional candidates with careers outside of the C-suite that have not previously served on public company boards was designed to help diversify the talent pool.
In support of its action, the Comptroller’s Office cites empirical research by McKinsey and MSCI that has found a positive correlation between board diversity and performance—both financial performance and integrity. The announcement notes that the “persistent lack of diversity in the business world is especially stark at the top. As of 2018, 66 percent of board members at Fortune 500 companies were white men. Another 17.9 percent were white women, followed by 11.5 percent men of color and 4.6 percent women of color. When it comes to executive leadership, as of May 2019, 6.6% percent of Fortune 500 CEOs were women, and there are similarly low numbers of people of color leading those companies.” However, applying the Rooney Rule might make a difference. According to the announcement, a 2016 study in the Harvard Business Review found that “the odds of hiring a woman were 79 times greater when there were at least two women in the finalist pool, and the odds of hiring a minority were a staggering 193 times greater when there were at least two minority candidates in the finalist pool.”
The announcement indicates that, of the 17 companies to which shareholder proposals were submitted, the Comptroller’s Office has
“negotiated pioneering Board and CEO diversity search policies with 13 leading companies in response to shareholder proposals submitted as part of their Boardroom Accountability 3.0. The Boards at each of these companies have approved, and publicly disclosed, policies requiring the consideration of qualified women and racially/ethnically diverse candidates for director and external CEO searches. Many of the policies included explicit provisions that the Board will instruct any search firms they retain to include such individuals in their initial list or pool of candidates. Constructive engagement and the leadership exhibited by these companies led to the prompt withdrawal of the NYCRS’ shareholder proposals.”
Of the remaining four companies that received proposals, two adopted policies that addressed director searches, but not CEO searches, which the Controller’s Office did not consider sufficient to withdraw the proposal (although the SEC did permit one company to exclude the shareholder proposal under Rule 14a-8(i)(10) on the basis that the proposal had been substantially implemented). As a result, three proposals will go to a vote of shareholders this proxy season.